Pension contributions limited to £10k a year? Really? Help please

[wink1970]

Hi All

I have just had an email from my financial advisor saying my pension contribution need to stop as they have reached £10k this year. I thought the limit was £40k but he said it's because I have gone over £210k earnings.

Is this right? That's nuts if it is; I have really only just started putting into my pension properly this last 2 years, my pot is only about £200k, what do I do now?

(I know this is a mega 'first world problem' and it's not a stealth boast, I am genuinely perplexed).

Thanks in advance for any advice.

I really don't understand these things but I think it's to do with this.

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

It's really worth paying for proper financial advice.

Thanks Stressed. This took my FA by surprise as my pay has massively increased over the last 18 months (we don't talk that often).

Do you know if I can make contributions without claiming tax relief, as presumably it's that bill HMRC are looking to avoid?

Not a FA, but I think you can pay into a pension from your Taxed income, but obviously NOT claim tax relief. Check with your FA though,

Are you running your own business or are you employed?

Hi All (and thanks for reponding)

I'm PAYE. This is my private pension, I opted out of the work one.

Cant you make use of previous years' underpayments? I thought you could.

You can indeed make use of previous year underpayments - 2015/16 was a bit of a funny calc though, but your FA should be able to help.

hadalife unfortunately that's not the case. I think it was the original idea behind it....

You can contribute for the past four years (?) up to the value of your salary each year, up to £40,000.

The main problem seems to be the level of your earnings - so maybe invest some of that in different ways?

Thanks, I'll look at using up the last years - I did some reading earlier and I think it's 3 years. I've got my FA onto it, but he's super slow.

Is it me though? I thought we were all meant to be grown up and save for our retirement?

you can use prior year's underpayments if you have any

you are not actually limited to £10k, it's just only £10k is tax efficient. Any more is taxed. So it's a decision you have to make as to whether you want to contribute more or not. You can but it's just not very tax efficient.

I would

1. Make sure you've used your ISA allowance
2. Fill up premium bonds

and then try and invest in pension similar investments with what you would have put in your pension.

and yes you can put what you like in your pension (re your earlier question) but only £10k will get tax relief. I know this is a daily mail link but it explains it quite well

www.thisismoney.co.uk/money/pensions/article-4487790/I-m-31-earn-130k-want-save-pension.html

(You're nowhere near the lifetime allowance which is more of a penalty tax wise!)

Thanks Daffo, that's really useful.

The lifetime level seems to be the most frustrating - I actually can't invest that much now under these new rules, to get to this limit? Here I was thinking I was being responsible. I have only recently caught the bug!

OP, you are lucky enough to have an income that easily puts you in the top 1 or 2% of the population. The tax system is meant to be progressive, ie the more you earn the more you pay. That's why very high earners are meant to pay more.

For tax free investments, Have you looked into lifetime isas?

OP did you get a proper carryforward calculation? This is SO valuable and the pre and post alignment tax year 15/16 needs to be maximised or you’ll really miss out on this opportunity.

Take advice. People tend to write misinformed rubbish (sorry but it’s true) on boards. E.G Nobody in their right mind would put net, taxed money in a pension, unless it was matched funding from an employer ie ‘free money’. To do so would mean you’ve paid PAYE tax on the way in AND PAYE tax when it comes out of the pension. The only exception (beyond matched funding) MAY be when you have no intention of spending the pension and are simply using it as a funding vehicle for IHT planning, and, in a very unlikely situation have a low pension so the LTA is not relevant. I have had this, but only once and the client was 74.

If you’re financial adviser isn’t all over this for you, get a better one.