Tax Relief Limits – Implications for High Earners
With effect from 6 April 2006 (known as Pension A day or Pension Tax Simplification), under the Finance Act 2004, a new tax regime came into force, with the introduction of 2 new limits: Annual Allowance (AA) and Lifetime Allowance (LTA).
Prior to April 2006 there have always been several limits on what you can pay into a pension scheme and the maximum benefits you can receive. There were various rules which were complex and different rules depending on the date you joined a scheme, the reason for leaving or retiring, the length of your service in a scheme and the level of your salary. The purpose of the new tax regime was that the government wanted to encourage retirement provision by simplifying and rationalising the previous tax regimes into a single regime as applied to the tax-free pension savings for all approved pension schemes.
The new regime Pension Simplification allowed considerable freedom in the tax relievable contributions that could be made to a pension scheme. It also however capped the size of the tax favourable pension fund that may be accumulated by an individual. The limits effective from 6 April 2006 were:
Any benefits in excess of these limits is subject to a tax charge. For those individuals who, at 6 April 2006 had already accumulated pension funds in excess of the new LTA limit, there was Transitional protection available up to 6 April 2009 to protect against a tax charge. The 2 ways of doing this was Primary Protection & Enhanced Protection. You are no longer able to apply for either of these protections.
Current limits – with effect from 6 April 2011 & 6 April 2012
In October 2010, as part of the Government’s spending review introduced further changes to restrict pension tax relief under the Finance Act 2011:
As before in 2006, there was some transitional protection available. This is known as Fixed Protection and was for those individuals who expected their total pension fund value to be in excess of the new lower LTA of £1.5m. This means pension benefits are protected from any tax charge up to a value of £1.8m, but protection will stop if in the future the LTA increases to more than £1.8m in the future. The deadline for applying for Fixed Protection was 5 April 2012.
New lower limits – with effect from 6 April 2014
The Chancellor in his Autumn Statement on 5 December 2012 announced further reductions:
Where to find out more about Pensions Tax Relief Limits
The following web pages are constantly updated with new information and documentation.
UCL Guidance Notes
For members who could be affected by the new lower limits, these guidance notes set out a summary of related matters:
Tax Relief Presentation Slides held at UCL are available here:
USS members only
NHS members only
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