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Pension Allowances

We all want to build the largest possible amount of retirement savings so that we may enjoy those golden years as fully (and as early) as possible. However, there are multiple considerations which must be borne in mind to make retirement saving as efficient as possible. Government-set pension allowances are a critical one.
Your annual allowance is the maximum that you can save into your pension pot each fiscal year before paying tax (i.e., still benefitting from tax relief on your contributions). Following the Spring Budget of 2023, this is now £60,000, up from £40,000, where it had been frozen for almost a decade. In another big increase, those who are drawing a pension, but who still want to save more will be able to put in £10,000 a year, rising from £4,000.

But High Net Worth Individuals also face a tapered annual allowance which further limits the amount of tax relief they can claim on their pension contributions by reducing the annual allowance available. For instance, for the 2022/23 tax year those with ‘Adjusted Income’ over £240,000 saw their allowance decrease by £1 for every £2 over this amount; and those with income over £312,000 had their allowance go down to a minimum of £4,000. Since investment income and the value of employer pension contributions are included in this definition of income, this rule is easy for the unwary to fall afoul of.

Since investment income and the value of employer pension contributions are included in this definition of income, this rule is easy for the unwary to fall afoul of

The Government made a concerted effort to woo higher-earners in the March 2023 Budget by announcing the end to the Lifetime Allowance (LTA) in April 2024. This had been set at £1.073 million and had been blamed for many individuals in their 50s simply giving up work, particularly those with generous public sector pensions like doctors and senior teachers. It was therefore welcomed as power move to help get those who had retired in their sixth decade for LTA reasons back to work. However, HNWIs should bear in mind that the Opposition decried the move as benefitting only the very wealthiest in society, signalling that a change of power could see the LTA be reinstated – and possibly at a lower level than previously.

  • Recent changes to the pension allowances regime are much more favourable to higher-earners
  • However, complex tapering rules still apply, which defines ‘income’ in a very broad sense
  • As something of a political football, it pays to have an expert on hand to react to changes – and freezes – to allowances

Pension allowances are something of a political football and so they can be altered quite dramatically in a short space of time. This is one compelling reason why having a specialist pension adviser on hand to react to such changes is invaluable.

The second is that a pension expert will be able to advise on all the ways you can save for retirement outside of pensions, while still taking advantage of all the tax breaks they offer. Stocks and Shares ISAs are an ever-popular supplementary option.

Pensions are a very complex area of wealth management where it really pays to get professional advice. We can arrange no-obligation discussions with a shortlist of best-matched wealth managers at absolutely no cost to you. Get in touch to learn more from our expert team.

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