Personal planning within the tax regime

Author: Paul Garwood, James Kirk (

Categories: Getting advice, Personal Finance, Tax Planning
Tags: pension cap, Pensions, tax regime, uk government
Personal planning around pensions has become more complicated due to the limits that are now put on contributions, as Paul Garwood discusses in this TV show.

Personal planning for pensions

It can get complicated these days because we now have a regime – a tax regime on pension plans, which is governed by a limit on the amount that you can put in each year, the annual allowance. And it’s limited by the amount that you can accumulate within a pension plan, the lifetime allowance. And these limits or these measures were first introduced in 2006 at which time it was possible to put £215,000 into a pension plan and accumulate a pot of 1.5 million. And that 1.5 million rose over the subsequent four years to 1.8 million. The government soon realised that they were being too generous with tax relief. So we now have a position where the annual allowance has been reduced to, or will be reduced to, 40,000 as of next year. And the lifetime allowance will be reduced to 1.25 million as of next year. Now, that puts people who are getting very close to that allowance in a bit of a complicated position because they may well exceed it, so they have to make decisions on whether they should be further funding their pension plans. We also have a new rule whereby you can protect your pot up to the lifetime allowance that exists at the time the legislation is changed, and it’s currently 1.5 million. So people will have to make decisions regarding whether to adopt the 1.5 million and not pay any further contributions or drop down to the 1.25 million. And doing those calculations and making those decisions can be very, very difficult.

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