With the start of a new tax year tomorrow, one pension change being introduced is a reduction in the money purchase annual allowance, from £10,000 to £4,000.
This lower annual allowance applies to anyone who has flexibly accessed money purchase pension savings in a registered pension scheme.
The annual allowance remains at £40,000 for everyone else, but this article in The FT contains a useful reminder about the complexities of the annual allowance taper.
This taper restricts pension tax relief by reducing the amount of the annual allowance for individuals with an adjusted income of over £150,000 and a threshold income over £110,000.
The trouble is, as this FT article points out, it's often hard for higher earners to know their precise level of income in a tax year, and therefore what their tapered annual allowance might be.
As a result, and to avoid the risk of tax charges for breaching the annual allowance, many are choosing to opt for a self-imposed £10,000 contribution cap.
If you find yourself in this position in the 2017/18 tax year, please do get in touch and we can help you plan for your retirement.
“Fearful of misunderstanding the taper, exceeding their annual limits and facing tax charges as a penalty, many simply choose to cap their pension contributions at £10,000, rather than calculating whether this is necessary,”