How much can I pay into my pension?

The Annual Allowance is the limit on how much you can pay into a private pension each year and still benefit from tax relief. 

If you are a UK taxpayer, you can get tax relief on pension contributions of up to 100% of your earnings each year, up to a cap of £40,000, but if your total contributions exceed the Annual Allowance, you won’t get this tax relief anymore. You can find out more about how tax relief works in our guide How pension tax relief works.

The Annual Allowance includes all contributions into all private pension pots. This means that it’s not just your contributions you need to think about, but also any contributions your employer or anyone else makes on your behalf.

Some people may have a higher or lower Annual Allowance. For example, if you earn over £240,000 a year or if you are flexibly accessing your pension pot, then you might have a lower Annual Allowance, as for every £2 of income you receive over this threshold, you’ll lose £1 of your Annual Allowance, down to a minimum of £4,000. Whereas, if you didn’t use up your full Annual Allowance at any point in the last three years, you might be able to carry over any allowance you didn’t use. You can find out more about this in our guide Pension carry forward explained.

If your annual pension contributions exceed the Annual Allowance then you will need to pay what is known as the pensions Annual Allowance charge. The amount you will pay is not a fixed, and HMRC has an Annual Allowance Calculator so you can work out what you might need to pay if you exceed the limit.

As soon as you start taking money out of your defined contribution pension, your Annual Allowance reduces from £40,000 to £4,000 and becomes known as the Money Purchase Annual Allowance (MPAA). However, if you take a 25% tax-free lump sum out of your pension but not any income, you can still keep your full Annual Allowance. Learn more about the MPAA in our guide What is the Money Purchase Annual Allowance?

Author: wpadmin

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