In part three of our series on pensions and the lifetime allowance, Kay Ingram, director of public policy at LEBC, finds the complex nature of the annual allowance recovery charge makes it a stealth tax for some final salary scheme members
Over 55s who have, or intend to, access their pensions flexibly also need to be aware of the tax implications of doing so, especially if they are still working.
Since 2006 everyone has had an annual allowance for pension savings. This is the amount which can be paid into a registered pension plan in any one tax year with the benefit of tax relief at the taxpayer’s highest marginal rate.
For most employees the annual allowance is currently £40,000, with the ability to carry forward any unused relief from the three previous tax years, providing the taxpayer had a pension they were eligible to pay into in those three years. Any payment into a pension in excess of the annual allowance, plus carry forward relief, is taxed at the taxpayer’s highest marginal rate.
