Pensions

Tax relief on pension contributions

Tax relief avail­able for per­son­al con­tri­bu­tions is the high­er of £3,600 (gross) or 100% of rel­e­vant earn­ings.

Any con­tri­bu­tions in excess of £60,000, whether per­son­al or by the employ­er, may be sub­ject to income tax on the indi­vid­ual.

The lim­it may be reduced to £10,000 once mon­ey pur­chase pen­sions are accessed.

Where the £60,000 lim­it is not ful­ly used it may be pos­si­ble to car­ry the unused amount for­ward for three years.

The annu­al allowance is tapered for those with adjust­ed income over £260,000. For every £2 of income over £260,000 an indi­vid­u­al’s annu­al allowance will be reduced by £1, down to a min­i­mum of £10,000.

Employ­ers will obtain tax relief on employ­er con­tri­bu­tions if they are paid and made ‘whol­ly and exclu­sive­ly’ for the pur­pos­es of the busi­ness. The tax relief for large con­tri­bu­tions may be spread over sev­er­al years.

Pensions automatic enrolment

Auto enrol­ment places duties on employ­ers to auto­mat­i­cal­ly enrol ‘work­ers’ into a work based pen­sion scheme. Employ­ers are required to auto­mat­i­cal­ly enrol all ‘eli­gi­ble job­hold­ers’ into a qual­i­fy­ing pen­sion scheme and pay pen­sion con­tri­bu­tions on their behalf.

Employ­er min­i­mum con­tri­bu­tion: 3%
Total min­i­mum con­tri­bu­tion: 8%

Where the employ­er does not make the total min­i­mum con­tri­bu­tion the employ­ee is oblig­ed to pay the bal­ance.

State Pensions

The basic State Pen­sion is a reg­u­lar pay­ment from the gov­ern­ment that an indi­vid­ual may be enti­tled to when they reach ‘State Pen­sion age’.

The basic State Pen­sion depends on the num­ber of years an indi­vid­ual has paid Nation­al Insur­ance or got Nation­al Insur­ance cred­its, eg while unem­ployed or claim­ing cer­tain ben­e­fits.

To receive the basic State Pen­sion an indi­vid­ual must have paid or been cred­it­ed with Nation­al Insur­ance con­tri­bu­tions (NIC).

In 2016 the State Pen­sion was reformed into a sin­gle-tier new State Pen­sion. In order to ben­e­fit from the full amount the indi­vid­ual will need 35 years, rather than the pre­vi­ous 30 years of NIC or cred­its for the full amount, with pro-rat­ing where 35 years is not achieved. You will usu­al­ly need 10 qual­i­fy­ing years to get any State Pen­sion. The amount an indi­vid­ual receives can be high­er or low­er depend­ing on their Nation­al Insur­ance record. It will only be high­er if you have over a cer­tain amount of Addi­tion­al State Pen­sion.

Cur­rent­ly an indi­vid­ual may also be enti­tled to the Addi­tion­al State Pen­sion. How much an indi­vid­ual gets depends on the num­ber of qual­i­fy­ing years of NIC, the amount of earn­ings and whether the indi­vid­ual has been con­tract­ed out of the scheme.