Personal Pension Contributions

For the vast majority of people who pay into a personal pension to save for their retirement, it’s unlikely the maximum contribution limits laid down by the government will ever be breached.

Despite this, it’s still important to have a clear understanding of what they are.

This article looks at the limits on personal pension contributions and how they are applied:

What are the maximum personal pension contributions you can make each year?

In effect, there are no limits to how much you can put into your personal pension each year. You can pay as much as you like into your plan. To top up your personal pension, you can make monthly contributions or make one-off lump sum payments.

However, the maximum gross contribution you can make into a personal pension during the current tax year (2019/20) and still receive tax-relief is either £40,000 or 100% of your total earnings – whichever is lower.

Any amounts you pay into a personal pension over and above these limits will not receive any tax-relief contributions from the UK government and will be added to your overall earnings to be taxed at your marginal rate.

The personal pension contributions annual allowance is monitored during a tax year and is known as the pension input period.

The table below provides a series of different examples to illustrate how this works.

Annual Income	Total gross pension contributions	Total contributions qualifying for tax-relief	Total contributions excluded from tax-relief
£30,000	£10,000	£10,000	£0
£25,000	£30,000	£25,000	£5,000
£75,000	£40,000	£40,000	£0
£90,000	£50,000	£40,000	£10,000

In the second example shown above, whilst it may seem unusual for someone’s total personal pension payments to exceed their annual income, the allowance includes contributions from all sources (employer/family members etc).

How much should I pay into a personal pension scheme?

How much you should be saving depends on your desired retirement amount and what you can comfortably afford. Your contributions may also change depending on which type of personal pension you choose (stakeholder pension, private pension, or a SIPP), and the provider you go with. For example, stakeholder pensions are tightly regulated and carry less risk, but the returns may be smaller.

To find out how much you could comfortably contribute, make an enquiry for a free, no-obligation chat about your options.

What’s the minimum amount you can contribute?

The minimum workplace pension is 8% in total (5% from your wages and 3% from your employer). However, there’s no overall minimum amount for personal pensions – any minimum contributions will be set by your pension provider.

What about if I have no earned income?

If you have no earned income of any kind, you can still contribute to a personal pension plan. The maximum contributions you can make in these circumstances is £3,600 per year (gross) / £2,880 (net).

How much can I pay into a personal pension plan if I earn over £150,000?

If your total taxable income exceeds £150,000, then the maximum contribution you can make towards a personal pension will begin to reduce by £1 for every £2 of income above this amount.

This is what’s known as the tapered annual allowance and applies to all income between £150,000 and £210,000, both earned and unearned – for example,  employment, property rentals, share dividends, etc.

The table below illustrates how this works:

Total Income	Tapered Annual Allowance
£150,000	£40,000
£160,000	£35,000
£170,000	£30,000
£180,000	£25,000
£190,000	£20,000
£200,000	£15,000
£210,000	£10,000

As you can see from these examples, if your total income is in excess of £210,000 the maximum contribution you can make to a personal pension and still claim tax-relief is £10,000.

If you’re keen to make the maximum contribution possible to your personal pension plan without exceeding your annual allowance, regardless of how much you earn, this is where we can help.

The advisors we work with can provide you with the assistance you require in order to ensure you stay within these limits. Give us a call on 0808 189 0463 or get in touch and we will arrange for an expert to contact you.

Can I use a calculator to work out the maximum payments I can make?

Yes, this is possible. An online calculator can often be a very effective tool if you’re looking to work out the maximum personal pension contribution you can make, based on your particular income.

It’s worth noting, however, that the key aim for any retirement plan is that your contributions remain on target to return the level of income you require once you decide to stop working.

This is why it’s so important to regularly review your personal pension contributions with an advisor to ensure you remain within the annual allowance rules and that they stay on track to deliver the fund value needed when you retire.

If you make an enquiry we can arrange for an expert to get in touch to discuss this in more detail.

Can I carry forward any unused personal pension contributions allowance from previous tax years?

Yes, absolutely. Carry forward allows you to use any excess annual allowance from the three previous tax years.

In order to qualify for carry forward relief you must satisfy two conditions.

Carry forward rules

• Your income in the current tax year must be at least equal to the total contribution you wish to make
• You need to have been a member of a pension scheme registered in the UK (excluding the UK state pension) for each of the previous tax years where you’re looking to carry forward the unused allowance

Carry forward can be an extremely useful facility for anyone looking to make the maximum personal pension contribution they can and still qualify for tax-relief, particularly if you’re self-employed and you have seen a spike in your income in the current tax year.

The table below illustrates how carry forward could work in practise:

	2016/17 Tax Year	2017/18 Tax Year	2018/19 Tax Year	2019/20 Tax Year
Allowance	£40,000	£40,000	£40,000	£40,000
Pension Contributions	£20,000	£30,000	£35,000	£10,000
Remaining Allowance	£20,000	£10,000	£5,000	£30,000
Total available for carry forward	–	–	–	£65,000

In the example above, only £10,000 has been contributed so far in the current tax year leaving a further £30,000 available.

For the purposes of carrying forward, the current tax year’s allowance must be used first then the unused allowance from the earliest tax year (2016/17 in this case) can be used, working forward from that point.

Your earnings for the current year must at least equal the total amount you are looking to contribute towards your personal pension, using carry forward rules, therefore, in this example it would need to be £75,000.

Can personal pension contributions be carried back?

Unfortunately, no. A backdating or carry back facility – counting pension contributions made in the current tax year as being paid in previous years – is no longer available.

If you have a personal pension plan and are looking to maximise your pension contributions by using an alternative to the carry forward facility, give us a call on 0808 189 0463 or make an enquiry and we will arrange for an expert to get in touch.

How much can I contribute to a personal pension if I’m already drawing an income from a previous plan?

If you have already taken the benefits from a previous personal pension or any other form of defined contribution scheme but still wish to make contributions to a new plan (if you’re semi-retired, for example and still earning an income), the maximum contribution you can make is £4,000 or 100% of your earnings (whichever is lower).

This is known as the money purchase annual allowance (MPAA). Your contributions still qualify for additional tax-relief, however, the overall allowance is much lower, therefore, careful consideration needs to be given before deciding to cash in an existing pension.

If you’re unsure and would like to speak with an expert before taking this action, get in touch and we will arrange for an advisor we work with to contact you.

How much can you put into a personal pension during your lifetime?

All UK personal pensions have an upper limit on the total value of contributions you can make during your lifetime without incurring any further tax charges, known as the lifetime allowance.

In the current tax year (2019/20) the lifetime allowance is £1,055,000. Any funds claimed as pension benefits above this amount will incur additional tax charges (25% for drawn income or 55% for lump sum payments).

What are the rules around small pension pots?

If you’re eligible, you can take out a cash lump sum from a small pension pot which contains less than £10,000. You can do this three times in total, taking out a maximum of £30,000. So, you can contribute into different personal pension pots and cash them out for your own use.

However, bear in mind that 75% of whatever you cash out will be taxed, and could even push you into a higher tax bracket for that financial year. Though taking out a small pot lump sum won’t affect the amount you can pay into another pension scheme before tax charges incur.

Can I claim a refund on my personal pension contributions?

You can, although they are usually quite rare. If you’re a member of a personal pension scheme you can only apply for a refund of contributions within the first 30 days. Any amounts refunded will be paid net of basic rate tax-relief.

Any employer contributions made to a personal pension plan will not be refunded and will remain within the fund.

Who can contribute to a personal pension?

Personal pensions are available to anyone who is employed, self-employed or currently not in work. If you’re an employer you can contribute towards an employee’s personal pension. You can also contribute towards a spouse or partner’s pension.

There are no restrictions or limits on the number of personal pensions you are allowed at any one time. You will still qualify for tax-relief on all of the different plans providing your total contributions remain within the annual allowance.

If you’d like to know more about the types of personal pensions available, give us a call on 0808 189 0463 or make an enquiry and we can arrange for an advisor we work with to get in touch.

Personal pension contributions and gift aid payments

It is possible to make charitable donations through your personal pension and still receive tax-relief if your provider offers a Payroll Giving scheme.

Any tax relief you receive will be based upon your marginal rate of tax at the point you make the donation.

Speak to a pensions expert

For anyone currently paying into a personal pension, it’s important to have an understanding of what the maximum contributions are and how the carry forward rules work should you wish to utilise any unused allowance from previous years.

The advisors we work with can help provide all the assistance you need if you’re looking to maximise your own personal pension contributions.

We won’t charge a fee for introducing you to an expert and any information is always given in the strictest confidence. Call us on 0808 189 0463 or make an enquiry to get started.