While pensions are a tax-efficient way of providing for your future, there is a limit to these tax advantages, known as the Annual Allowance (which affects the amount you can contribute each year with tax benefits).
So, if you have a high income it’s worth making sure you understand how you might be affected.
You should speak to an accountant or independent financial adviser if you think you may have exceeded or are likely to exceed the Annual Allowance.
Until March 2023, there was also the Lifetime Allowance (which took into account the total amount of pension you built up over your lifetime). In March 2023, the Government announced it was abolishing the Lifetime Allowance from April 2024, with no future Lifetime Allowance charges to apply from April 2023.
This is a limit on the amount of tax-efficient pension benefits which you can build up each year in all your Registered Pension Schemes. Any increase in the value of your benefits above this amount may be subject to a tax charge. The method of valuing the benefits you have built up in any tax year to test against the Annual Allowance is set by HMRC.
This limit applies across all pensions you’re paying into. So, if you’re paying Additional Voluntary Contributions (AVCs) or paying into a defined contribution pension, you’ll need to add the amount paid to these pensions to the value of pension you have built up in your Raytheon Scheme pension that year, to determine whether you’re building up more than the Annual Allowance.
If you go over the Annual Allowance you may be subject to a tax charge.
The standard Annual Allowance is currently £60,000.
You may have a reduced Annual Allowance if, broadly, you earn over £260,000 a year. Your Annual Allowance may also be affected if you start taking any pension benefits.
You can find out more about this on the Government’s website.