How much can I pay into my pension scheme?

How much can I pay into my pension scheme?

When you come to retire you have no business to sell to help fund your retirement, which means that you need to plan your retirement strategy.

The establishment of a sizeable pension fund may well form a major part of your strategy. We strongly recommend to our clients that they make contributions to a pension scheme from as early as possible in their career. If not, it just gets more expensive!

You are entitled to make qualifying contributions of up to £3,600 per annum (before basic rate tax relief at source) into your personal pension scheme without reference to your earnings. For larger contributions to qualify for tax relief they must not exceed the lower of 100% of your earnings in the tax year or the 'Annual Allowance'. The Annual Allowance for 2014/15 onwards is £40,000 (for 2013/14 this was £50,000.) In some circumstances it is also possible to sweep up unused annual allowance from the previous three tax years.

There is also a 'Lifetime Allowance' which is the maximum total pension fund value that can attract the favourable tax benefits. If your fund is greater than the Lifetime Allowance when your benefits are crystallised, a tax charge of 55% is applied to the surplus (lump sum). Alternatively, you can pay a 25% tax charge and use the remaining surplus to provide an income. The Lifetime Allowances are:

Tax Year Lifetime Allowance
2013/14 £1.5m
2014/15 onwards £1.25m

There are other complexities. There might be planning opportunities available to you, for example by making pension payments for non-working spouses or children.

Your interests may be best served by setting up your own self-invested personal pension (SIPP). We can advise you of the benefits (and drawbacks) of this type of pension fund.

One size does not fit all in pension planning. One of our strengths is that we investigate and monitor the whole range of pension policies available and advise you on the best choice for you.

This answer was last checked May 2017. This answer is for general guidance only. It provides an outline, and may not include points which are important in your case. You should not rely on this answer without taking individual advice based on the full facts of your case. The information given was correct at the time of release.