Your pension is or should be a fantastic vehicle to save for your financial future. However there are limits to how much you can invest either on an annual basis or your lifetime allowance. For the period 2019 to 2020 your pension lifetime allowance is £1.055m. If you do exceed this amount you are subject to paying tax depending on how you take the amount over and above the allowance either as a lump sum or through an annuity.
What is the lifetime allowance?
The pension lifetime allowance is basically a limit to how much you can invest into your pension arrangements without paying additional levels of tax the allowance increases every year by inflation but depending on which government is in power the level of allowance can potentially fluctuate. Any amount over the limit of £1.055m should be looked at carefully as you are liable to pay tax depending on how you draw down this level of excess.
Is it worth exceeding the lifetime allowance?
With your pension lifetime allowance being capped for the year 2019/20 at £1.055m anything over and above this should be looked at carefully as the potential financial loss could well be greater than the benefit in introducing funds to your pension arrangements. If you are near to this limit it is worth obtaining the advice from a specialist financial adviser as to the benefits and penalties that you would have to pay so that you can establish how best to invest monies if the pension arrangements due to these penalties are not the most appropriate.
What is the maximum pension contribution for 2019/20?
The maximum pension contribution for the year 2019/20 is 100% of your salary or £40,000 whichever is the lower amount. However if you have been party to a scheme whereby you have transferred your final salary benefits this will not have an effect on your annual allowance. Any introductions to financial schemes such as your pension should be checked over by a specialist financial adviser as potential costs can be incurred through HMRC and tax levied.
How much is the pension annual allowance?
Your pension annual allowance stands at £40,000 per annum or 100% of your salary depending on which is the lower amount. Pension arrangements should be through a financial adviser particularly if you are nearing the limits for contribution or your pension lifetime allowance which for the period 2019/20 stands at £1.055m. This can then avoid any potential tax implications in the future should HMRC investigate your pension arrangements.
What is the maximum LTA limit?
The maximum LTA limit is for the period 2019/20 set at £1.055 a figure which increases per annum by the rate of inflation. However, other factors can include the government in power at the time and how they see pension arrangements in terms of their own fiscal policy. So whilst figure should rise per annum any change of government could potentially have a beneficial or adverse effect on this limit.