Tax Rules

Under current rules the key limits are:

2020/21 2019/20
Life Time Allowance
£1,073,100
£1,055,000
Annual Allowance
£40,000*
£40,000*
Maximum Employer Contribution up to (unless previous years allowances used)
£40,000*
£40,000*
Maximum Member Relievable Personal Contributions (within Annual Allowance)
100% of salary up to £40k or £3,600 if greater
100% of salary up to £40k or £3,600 if greater
Maximum Pension Commencement Lump Sum (currently tax free)
25% of the member’s fund value up to 25% of the Lifetime Allowance
25% of the member’s fund value up to 25% of the Lifetime Allowance
Money Purchase Allowance
£4,000
£4,000

*Individuals with adjusted earnings over £150,000 have their annual allowance reduced by £1 for every £2 of adjusted income up to an upper limit of £210,00.

For 2020/21 these limits are revised, to a threshold level of £200,000 and an adjusted income of over £240,000.
Care needs to be taken, therefore, in making sure these limits are not exceeded. Contributions, in excess of the allowances, can be made, but will not qualify for tax relief.

We will provide advice where required and monitor these limits for members.

The other key tax penalties to note are as follows:

2020/21 2019/20
Charge on exceeding the Annual allowance
20%-45%
(members tax rates)
Charge on exceeding the Lifetime allowance
If taken as a lump sum If taken as income
55% 25% (in addition to other personal taxes)
Unauthorised payment charge*
40%
See note below
Scheme Sanction Charge* (Levied on administrator)
15%
See note below

*The unauthorised payment charge and scheme sanction charge arises, broadly, where an investment or payment is made which is not an authorised payment within the pension legislation.

This could arise where an inappropriate investment is made, for example residential property or money is paid out to a member other than as pension commencement lump sum or as taxable pension income.