The pensions lifetime allowance places a cap on overall tax-relieved pension savings. Pension savings in excess of the lifetime allowance are subject to a lifetime allowance charge, which effectively claws back tax relief.
The pensions annual allowance places a cap on tax relieved contributions, which can be made to a registered pension scheme for the pension input period. From 2016/17, the pension input period is aligned with the tax year.
Changes were introduced with effect from April 2015, which provide those aged 55 plus with greater access to their pension savings. Where an individual has a defined contribution (money purchase) scheme, it is no longer necessary to purchase an annuity with the pension pot.
Individuals are able to make tax-relieved contributions to registered pension schemes to the higher of 100% of earnings and the standard amount (£3,600), as long as they have sufficient annual allowance available. For 2016/17 the annual allowance is set at £40,000; however, this is reduced for high income individuals whose income exceeds certain thresholds.
Are you one of the 1.8 million small business owners in the UK? If you are, we are almost certain by now as an employer, you will be aware of the need to offer an auto-enrolment pension scheme for your employees. So here's our essential guide of what you need to know: