Already in pension drawdown and want to keep contributing?
Post Author:
Angie Harvey
Date Posted:
November 16, 2018
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This is the fourth blog in our pension series, which discusses the impact on the pension annual allowance for someone who is already in pension drawdown.
The general rule here is that if someone has taken the decision to start drawing funds out of their money purchase pension scheme – over and above the 25% tax-free amount – their annual allowance will be reduced to a maximum of £4,000 per annum.
A reduced annual allowance of only £4,000 could significantly hamper tax planning opportunities. Pension contributions are generally considered to be one of the best and most tax-efficient ways to save for your retirement. The loss of 40% or 45% tax relief (41% or 46% in Scotland) because of a reduced annual allowance could have a significant impact on the amount of tax that you have to pay.
Therefore, if you want to contribute more than £4,000, you probably shouldn’t dip into your personal pension quite yet!
However, just one small caveat to the above – if you entered into a capped drawdown arrangement prior to 6 April 2015 your annual allowance will not be restricted unless you exceed the drawdown cap.
Please also visit our previous blogs in this series below.
