Am I limited with how much I can pay into my fund?


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Income tax allowances

Income tax allowances detail the amount of income you receive before you start paying tax. Tax allowances are set by the government and you can check your own personal allowance directly with HMRC (HM Revenue & Customs). Information on general income tax allowances can be found at www.hmrc.gov.uk  although your own tax allowance may be different based on your own circumstances. 

If you are an active member of the scheme and pay tax on your income you will receive tax relief on your contributions. This means no tax is paid on the contributions deducted from your total pay before any tax is deducted by your employer. This is known as a Net Pay arrangement. If you do not pay income tax, you will be unable to benefit from tax relief. If you are a pensioner you may want to look at the following information - Why has tax been deducted from my pension?

Annual Allowance

The Annual Allowance is a limit on the total amount of pension savings you can make each year without incurring a tax charge. It applies to all your pension schemes in total, not individually.

  • The limit for the current tax year (2023/24) is £60,000. This includes all your contributions, tax relief and employer contributions across all the pension arrangements you have.
  • If your income is over £260,000 in a tax year, your Annual Allowance for that year will reduce on a tapered basis. For every £2 of adjusted income above £260,000, your Annual Allowance will reduce by £1. The maximum reduction is £30,000, meaning anyone with an income of £310,000 or above will have their Annual Allowance reduced to £10,000. 

Please see What is Tapered Annual Allowance? for further details.

if you have cashed-in a Defined Contribution (DC) pension pot i.e. taken more than the 25% tax free lump sum or you are drawing down an income from a 'flexi-access drawdown fund', the limit for future DC contributions will be reduced to £10,000, which is known as the 'Money Purchase Annual Allowance' (MPAA), for any DC contributions you make. 

This applies if you want to continue making pension savings in a DC pension arrangement. If you also have Defined Benefits (DB) with your current employer, the MPAA reduces the Annual Allowance for your DB benefits to a maximum of £50,000. The MPAA only applies to contributions to DC pensions and not to defined benefit schemes. Please consider taking independent financial or tax advice if this applies to you.

Exceeding the Annual Allowance

If you exceed the Annual Allowance in a tax year, you won't receive tax relief on any contributions that are above the limit and you will have to pay an Annual Allowance charge.

You may be able to use any leftover Annual Allowance from the previous three tax years to reduce or cancel the Annual Allowance charge if you did not use your full Annual Allowance in those years. This does not apply if you have a Money Purchase Annual Allowance.

The Annual Allowance charge will be added to the rest of your taxable income for the tax year in question, and used to work out your tax liability. If the Annual Allowance charge is more than £2,000, you can ask your pension scheme to pay the charge from your benefits. Your pension scheme benefits would be reduced accordingly to take account of the charge.

Lifetime Allowance

The Lifetime Allowance did place a tax limit on the tax-relieved pension savings you can receive during your lifetime. If you exceed this limit tax charges apply. The limit for 2021/22 was £1.073. If the total value of all your tax-relieved pension arrangements did go above the Lifetime Allowance, you will be taxed on any amount above this.

At Spring Budget 2023, the government announced that it would abolish the LTA with effect from 6 April 2024 but that there will be no lifetime allowance charge in tax year 2023/24.

Both the Annual (and previous Lifetime Allowances) will generally tend to affect those with fairly high earnings and/or significant pension benefits held elsewhere. When TPT provides you with quotes or statements, we will let you know what percentage of your Lifetime Allowance has been used up in the statements up to 6th April 2023. You should note that TPT Retirement Solutions and its representatives are not permitted to give financial advice.