Date posted: 4th Nov 2022
If you have received a letter from your employer’s pension company advising that your pension contributions are in excess of the standard pension annual allowance of £40,000, it can be daunting in terms of where to seek help and what the next steps are.
In very simple terms, most people can save up to £40,000 into a pension without any tax issues. Where anything above this amount is saved, then you may have some tax to pay on the excess contributions.
However, there are a variety of issues to consider such as any unused allowances from earlier years. There are also other issues such as whether your income means that you are subject to a reduced pension allowance.
Alastair is employed by an international manufacturing company earning £125,000 per year. Alastair is a member of the company’s final salary scheme and in the last three years, the pension “input” has been exactly £40,000. However, in 2021/22, the input rose to £45,000. As Alastair has exceeded the £40,000 allowance and has no unused allowances from earlier years available, he is subject to tax on the £5,000 excess.
Alastair will need to report the excess pensions savings tax charge on a self assessment tax return, even if he takes up the option of the pension scheme paying the tax liabilities, which is possible in some instances.
We are well versed in assisting client’s in terms of the tax reporting of any excess pension input and considering whether there are any unused allowances available to offset the pension input.
If you have any queries, please give us a call.