Reminder of current tax relief for pension contributions
Many commentators had predicted that the Chancellor would further reduce the annual amount that can be saved into a pension as part of the Budget measures. However, these fears appear to have been unfounded as no changes were announced.
The annual allowance for tax relief on pensions will remain at the current level of £40,000 for 2018-19. There is also a three year carry forward rule that allows taxpayers to carry forward unused annual allowance from the last three tax years if they have made pension savings in those years.
There is a tapered reduction of the annual allowance for high earners. Those with income in excess of £150,000 will begin to see their allowance tapered. For every complete £2 their income exceeds £150,000 the annual allowance is reduced by £1, up to a maximum reduction of £30,000 for individuals whose income is over £210,000.
There is a separate allowance known as the Money Purchase Allowance (MPAA) which applies once money has been taken from a pension pot. This allowance was reduced to £4,000 (was £10,000) from April 2017. The MPAA effectively stops an individual using the flexibilities to access a money purchase pension arrangement and then divert their salary into their pension scheme, gaining tax relief, and effectively withdrawing 25% tax-free.