Annual and lifetime allowances
There's a limit to the amount you can invest in pension plans every year before you are taxed on your contributions. It's set by the Government and it's called the annual allowance.
It is not as easy as counting the payments you make in the tax year, 6 April to the following 5 April. It is the payments you make during what is known as a pension input period (PIP) that count. This may be the same as the tax year, but it may not, so you should check with your financial adviser or pension provider who will tell you what your PIP is.
The annual allowance which applies is based on the tax year that your PIP ends in. For example if your PIP runs from 1 December 2012 to 30 November 2013, it would end in the 2013/14 tax year. This means you could contribute £50,000 before a tax charge may apply.
The Government recently announced that the annual allowance will reduce from £50,000 to £40,000 for PIPs ending on or after 6 April 2014. This means that contributions made in the 2013/14 tax year could be tested against the £40,000 annual allowance. For example, if the PIP currently runs from 1 May 2013 to 30 April 2014, any contributions made from 1 May 2013 will be tested against the £40,000 annual allowance as this ends in the 2014/15 tax year. However, if the PIP ended on 5 April 2014, the contributions will be tested against the £50,000 annual allowance as this ends in the 2013/14 tax year.
The table below confirms the annual allowance for each tax year to date:
|Tax year||Annual allowance|
There's a limit to the amount you can have built up in any pension plan when you start taking your retirement benefits. It's set by the Government and it's called the lifetime allowance. The table below shows you the lifetime allowance for the tax years 2013/14 and 2014/15.
|Tax year||Lifetime allowance|
Last update: April 2013