Pensions

Dear David: Chartered Financial Planner David Hill advises about pension savings limits



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Every other week we put one of our readers’ questions to Bedford-based Chartered Financial Planner David Hill.

David has worked in the financial industry for nearly 30 years and advises on investments, pensions, inheritance tax and care fees planning.

If you have a question you would like answered, please send us an email at david.hill@sjpp.co.uk or call 01234 480540.

Do let us know if you would like David to mention you by name in his response.

Dear David,

Is there any limit to how much I can save towards my pension and is this a yearly amount or a grand total?

Ms M B

Dear Ms M B,

The annual allowance restricts the amount that you can put into your pension tax-free each year. It is currently £40,000, but a new rule introduced in 2016 means that the allowance reduces by £1 for every £2 earned over £150,000, dropping to a floor of £10,000 for those earning more than £210,000 a year.

The calculations that determine whether you are affected by the taper are best left to a financial adviser or accountant; those going without advice can easily make the wrong assumptions and run a greater risk of incurring a tax charge.

Tax will usually be payable at your highest marginal rate on any pension savings above the annual allowance. Yet the annual allowance is not the only way that the government curbs pension saving; it imposes an additional control called the lifetime allowance (LTA).

The LTA represents an overall ceiling on the amount you can build up in a pension, including the value of any defined benefit (final salary) schemes you belong to.

Anything over the LTA is taxed at 55% when you take the excess as a lump sum, and at 25% on top of your marginal rate of tax when you take it as income.

In 2011/12 the LTA was set at £1.8 million, but successive cuts have trapped many savers; the reduction in the LTA from £1.25 million to £1 million in April 2016 has potentially brought many more individuals within its grasp.

Those that may be affected should seek advice as to the other options to fund their retirement. If you have exceeded the LTA or are likely to then you may be able to apply to HMRC to protect the amount you have already accrued, although this might mean you would not be able to make any further contributions.

Of course, you could consider stopping paying into your pension, seek the services of a financial adviser to calculate any potential income shortfall in retirement and devise a strategy to address this.

The key is to take advice to help understand exactly what you want and need at retirement, and then decide on the most appropriate investment strategy to get there.

To receive a complimentary guide covering Wealth Management, Retirement Planning or Inheritance Tax planning, contact David Hill Wealth Management Ltd on 01234 480540 or email david.hill@sjpp.co.uk

To receive a complimentary guide covering Wealth Management, Retirement Planning or Inheritance Tax planning, contact David Hill Wealth Management Ltd on 01234 480540 or email david.hill@sjpp.co.uk

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