Pension Annual Allowance 2011 to 2014

Published / Last Updated on 14/06/2015

Pension Annual Contribution Allowance 2011 to 2014 Explained

The Treasury confirmed new legislation with effect from 2011 through to 2014 regarding annual pension contribution allowances i.e.  the maximum you can pay each year in a pension contribution and lifetime allowances, the maximum value of pension funds that you take in your lifetime.

Annual Allowance from 6th April 2014 = £40,000

  • Reduced yet again to £40,000 pa.
  • This means that maximum you and your employer can pay in total in a pension fund has been reduced.
  • Other bases for calculating the equiavlent value for a final salary pension scheme remain unchanged

Annual Allowance from 6th April 2011 to 5th April 2014 = £50,000

  • Maximum yearly pension contributions (including employers and tax relief) £50,000 pa (the rules pre 2011 = £255,000)
  • Final Salary Pension Increases in the Year: Rises will use a valuation factor of 16 X (the rulee pre 2011 = 10 X valuation factor)

General Calculation: 

  • Gross Individual Pension Contributions plus Company contributions = Total Annual Contribution
  • Excess Contributions: if you and your employer excess the annual allowance, a tax charge is levied.
  • Final Salary Schemes are different and care should be exercised to calculate an increase in benefits to give an annual allowance equivalent value

Example Final Salary Valuation 1: Small payrise and additional year service

  • Accrued Pension Entitlement This Year £10,000 pa
  • Accrued Pension Entitlement Next Year £11,000 pa
  • Increase = £1,000 pa. 
  • Value for Annual Allowance Calculation £1,000 X 16 = £16,000
  • No Tax Charge

Example Final Salary Valuation 2: A Payrise May Cost You

  • Accrued Pension Entitlement This Year £10,000
  • Accrued Pension Entitlement Next Year £14,000 (because you had a promotion with a much higher salary meaning a higher pension entitlement)
  • Increase = £4,000 pa.  Value for Annual Allowance £4,000 X 16 = £64,000
  • £64,000 is over the £50,000 Annual Allowance Limit for 2011-14 = TAX CHARGE on £14,000 Excess
  • £64,000 is over the £40,000 Annual Allowance Limit for 2014 onwards = TAX CHARGE on £24,000 Excess

Pay in More than £40,000.

There are ways to pay in excess of the annual allowance by carry forward of unused tax relief for previous tax years.  Contact us for help with this.

Pension Annual Allowance Contributions
Contributions and Carry Forward of Unused Annual Allowance 2011 - 2012 - 2013

2011/12 is the first tax year-end in which the new £50,000 annual allowance and carry forward rules need to be taken into account when planning year-end pension contributions.  

If you or your employer pays more than £50,000 into pensions in total or you are ‘deemed’ to have paid more than this in your final salary scheme due to a pay rise or the extra year in service, you will face a tax penalty.

If you have not paid in the maximum over the last few years then you may have room to pay in more.

You can carry forward unused relief for the last 3 years, provided you have paid in the maximum for the current tax year.

  • With effect April 2014, the maximum annual contribution allowance decreases to £40,000.

If you do not use any unused relief from the previous three tax years you will lose it.  Contact us for advice on this complex area.

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