Tapered annual allowance

 

In this episode Anne McClean and Dougie Cameron chat about the annual tapered allowance, as well as the annual allowance limits that can be saved into a pension each year, and the ability to carry forward unused annual allowance from the previous three tax years.

In case you missed our lifetime annual allowance episode, have a listen here:

What you need to know about lifetime allowance

Also discussed in this episode:

[1:32] What is tapered annual allowance?
The standard £40,000 annual allowance is reduced by £1 for every £2 of adjusted income an individual has over £240,000 (in the 2020/21 tax year, increased from £150,000 in 2019/20). Tapering continues until the annual allowance reduces to £4,000 once adjusted income reaches £312,000.

[8:39] Carry forward – unused annual allowance from previous tax years, mop up unused previous contributions up to three years.

While high earners’ ability to make meaningful contributions to pension will obviously be severely restricted where earnings exceed £312,000, where earnings were lower than this in any of the previous three tax years, they may still be able to make use of carry forward of more useful levels of contribution from earlier annual allowances.

[14:32] Housekeeping on pension contributions – spouses using their annual allowance to optimised pension contributions

[16:45] Money purchase annual allowance – this can be misconstrued as this is a different allowance
The annual allowance may also be reduced when pensions are flexibly accessed via pension freedoms. The money purchase annual allowance reduces the annual allowance from £40,000 to £4,000 – but only for contributions to money purchase (Defined Contribution) schemes – such as personal pensions.

 

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This episode was recorded on 24/06/2021

This S&W The Pulse podcast is of a general nature and is not a substitute for professional advice. No responsibility can be accepted for the consequences of any action taken or refrained from as a result of what is said. The views expressed are not necessarily those of the presenter or of Smith & Williamson or any of its affiliates. No reproduction of this podcast may be made in whole or in part for professional or recreational purposes. No action should be taken based on this podcast and we accept no liability if we change your views on any of the subjects mentioned.

Podcast information:

The Pulse from Smith & Williamson

Financial Planning Show: Tapered annual allowance

Episode 8

Broadcast on Smith & Williamson at 09:00, 24th of JUNE 2021

Available online from 10:00 on the same day .

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