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It's not that hard to fall foul of pension limits...

The beauty of pension saving is tax efficiency, but breaching the limits can create significant tax liabilities.

As the Lifetime Allowance and the Annual Allowance have not kept pace with inflation over the last fifteen years, increasing numbers of professionals are being caught out. It's quite hard to keep tabs on these allowances, especially in Defined Benefit schemes where a pay raise can significantly increase your projected notional "contributions".

So, what is the Lifetime Allowance? Currently, it's £1.03 million for money purchase pensions, so you can see over a long period of time, taking into account investment growth, more and more people are reaching the limit.

FMB have been providing expert pension guidance since 1997

We have our own team of pension specialists who can help you navigate a course through the complex rules.

We do not outsource our pension advice like some firms. We have our own process which has been devised by Roger Jackson, Chartered Director of Financial Planning at FMB. We work closely with compliance specialists and take part in Financial Conduct Authority focus groups to ensure we deliver the best possible technical service.

Get in touch with your pension question

Drop us an e-mail, give us a call, or let us know when would be a good time to call you.

Contact Roger and the team

What is the Lifetime Allowance?

The Lifetime Allowance is a limit on the amount of pension benefit that can be drawn from pension schemes – whether lump sums or retirement income – and can be paid without triggering an extra tax charge.

Some of the questions people ask us:-

If my pension is invested, how will I know if I'm likely to have an LTA issue in the future?
I'm in a Defined Benefit Scheme, does this affect me?
What can I do to avoid the situation?

There is some helpful guidance published by the Pensions Advisory Service which helps set out all the rules.

If you do breach the LTA, you will trigger a tax liability:-

The rate of tax you pay on pension savings above your lifetime allowance depends on how the money is paid to you - the rate is:

55% if you get it as a lump sum25% if you get it any other way, for example pension payments or cash withdrawals

Spotlight on the Lifetime Allowance

The Pensions Advisory Service

What is the Annual Allowance?

Simply, the annual allowance is a limit on the amount that can be contributed to your pension each year, while still receiving tax relief. It's based on your earnings for the year and is capped at £40,000.

From 6 April 2014 the annual allowance for tax relief on pension savings in a registered pension scheme was reduced to £40,000. This includes contributions made by anyone else into your pension such as your employer. If your pension savings exceed this amount you may have to pay a tax charge and give details of this on a Self Assessment tax return.

In a Defined Benefit Scheme, the "benefit" during the year must not exceed a defined limit and this is worked out with a specific formula based on the increase in CPI during the pension input period.

HMRC guidance on Annual Allowance

What is the Tapered Annual Allowance?

The tapered annual allowance came into force as of 6 April 2016 for high earners.

For every £2 of income above £150,000 per annum, £1 of annual allowance will be lost. The maximum reduction will be £30,000 meaning that anyone earning over £210,000 will have their annual allowance capped at £10,000.

An income floor will mean the taper will not apply unless the individual's income excluding pension contributions exceeds £110,000 (referred to as their “threshold income”).

Pension legislation is complex which is why there are rules in place about seeking Independent Financial Advice on even relatively small pots. If you have any questions or concerns about breaching the Annual Allowance or Lifetime Allowance, make sure you speak to someone well qualified. The highest pension qualifications with the Chartered Institute of Insurance, our most popular qualifying body, are AF3 (since replaced by two exams AF7 and AF8 in 2017). Several members of our team hold these exams

How can we help?

We offer a no obligation meeting so we can explore the kind of advice you may need. There is no charge for this. We offer a full financial planning service so we take into account your complete financial picture and create a plan for the future based on your life goals, career aspirations and financial objectives. Inevitably for most people, their pension forms a significant part of this discussion. We will use cashflow modelling tools to create a financial plan which will form the basis of our future relationship, working together to keep everything on track. Obviously, our financial planning service incurs a charge, but we never commence work without agreeing a fee in advance.

Financial Planning from FMB

There is no substitute for the kind of technical knowledge and experience I found at FMB. Roger's help was invaluable and as a result I've retired early.

I'm busier than ever now cycling and I've even started a new business in my spare time.

Dave Winder

Meet our team

We're here for Tax Advisers too

We often help accountants with complex tax advice surrounding pensions for high earners. If you need a sounding board we are here to help. Likewise for solicitors working on pension sharing cases, we are happy to offer any support we can.

Contact Roger and the team

Lifetime Allowance

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FMB Financial Management Bureau Limited, Shenstone House, Helsington, Kendal, Cumbria LA8 8AA. Telephone: 01539 725855 Email: info@finman.co.uk

Financial Management Bureau Limited is authorised and regulated by the Financial Conduct Authority.
Financial Management Bureau Limited is a limited company registered in England and Wales. Registered office: Shenstone House, Helsington, Kendal, Cumbria LA8 8AA. Registered number: 02089786
The Financial Ombudsman Service is available to sort out individual complaints that clients and financial services businesses aren't able to resolve themselves. To contact the Financial Ombudsman Service please visit www.financial-ombudsman.org.uk

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