When the snap general election was called in May, several measures were withdrawn from the Finance Bill pending the outcome. One was the reduction in the money purchase annual allowance from £10,000 to £4,000 a year.
The Treasury has now confirmed the reduction will be back-dated to the start of the current tax year, meaning that those over 55 who have accessed their pension savings will now find that the amount they can contribute to their money purchase pension will be restricted to £4,000. This limit includes tax relief and employers’ contributions.
However, in most cases those who have yet to access their pensions savings will still have an annual allowance of £40,000 on which they will continue to be able to claim tax relief, though this allowance is tapered for high earners (£150,000+ per year).
Those most likely to be affected by this move are those still in work who have decided to dip into their pension early. But if they have only taken their 25% tax-free lump sum and nothing else, then this restriction won’t apply.
Pensions can be complex, if you’d like advice – get in touch.