High Earners - Pension Contribution Cut from 6th April 2016
The government have implemented further changes to annual allowances for pension savings which came into effect in the tax year 2016/2017.
For individuals earning over £150,000 per annum, the allowance will be reduced on a tapering basis.
For every £2 of income above £150,000, an individual’s allowance will reduce by £1. It will therefore reduce to £10,000 per annum for those earning above £210,000 per annum. The pensions annual allowance for contributions was previously £40,000 per annum.
The definition of ‘income’ will now no longer just be comprised of someone’s salary. It will be ‘adjusted’ to include other forms of income including savings, rental income and even employer pension contributions.
The change will have several implications for employers of high earners as there is no obvious way for them to assess ‘total income’ of employees, who may be reluctant to share their total financial positions with HR Departments.
If excess contributions are deemed to have been paid, tax of up to 45% may be levied on excess contributions.
This move has been made at the same time as the reduction in pension lifetime allowance. The threshold for total pension savings has been cut from £1.25 million to £1 million with effect from April 2016.
This entry was posted on May 19, 2016