Maximising the favourable tax breaks available to pension savings is clearly a good idea. It is, however, important to understand the annual contribution and pension benefit limits.
The annual contribution allowance is currently £40,000, although it may be possible to contribute a higher amount by ‘carrying forward’ unused relief from previous years. For those on high incomes this annual allowance reduces between £10,000 and £40,000 with effect from 6th April 2016. The Lifetime Allowance has been gradually reduced since it was introduced and is currently £1m with effect from 6th April 2016.
At the time you take benefits any excess over the Lifetime Allowance will be taxed at 55%, if drawn as a lump sum, or 25% if withdrawn as an income. This is known as the Lifetime Allowance charge. Over the years there have been various ways of protecting your pension savings from this and securing a higher personal Lifetime Allowance. Following the further reduction on the 6th April 2016, it will be possible to apply for the latest protection, either Fixed Protection 2016 or Individual Protection 2016, and secure a personal Lifetime Allowance of between £1m - £1.25m.
What to consider when making your first plans for retirement
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