£10k annual allowance for pensions

Since the pension changes were announced in March, there have been worries they could lead to tax-planning opportunities. They enable National Insurance contributions to be avoided where salary is sacrificed to a pension or cash to be 'recycled', by putting it into a pension that attracts tax relief and taking up to 25 per cent of it tax-free, but the Government has recently made its response clear. It intends to introduce a new £10,000 annual allowance for those who draw more than their tax-free cash from a defined contribution scheme of more than £10,000 from April 2015.

The reduced annual allowance makes sense to Axa Wealth head of technical consultancy Andy Zanelli. He says: "If you don't control the input and you say that people over 55 have the same annual allowance as pre-55, you open up opportunities, with potential ways for people to recycle the cash so they flip the money and make a return." Lorica Wealth Management chief executive Rhys Francis highlights a problem in having a £10,000 annual allowance running alongside the full allowance. He says: "A lower annual allowance for people who have commenced drawing their pension may reduce the amount sacrificed by the over-55s. It would also require employers and providers to administer two different limits for two groups."

Standard Life head of workplace strategy Jamie Jenkins believes the £10,000 annual allowance is a practical move by the Government. He says: "The £10,000 annual contribution limit is significantly higher than most people who are automatically enrolled will pay. Few people will be impacted." The experienced IFA’s at Enable of Bishop’s Stortford can help you with your pension enquiries.


Issued by: Enable Independent Financial Life Planners
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