Pension savings can be tax-efficient as it is possible to make tax-relieved contributions to registered pension schemes up to the higher of 100% of earnings and the available annual allowance. The annual allowance is set at £40,000 for 2017/18. To the extent that the annual allowance is unused, it can be carried forward for up to three years.
However, the allowance is reduced where a person has income excluding pension contributions of more than £110,000 and income inclusive of pension contributions (including any employer contributions) of more than £150,000. Where this is the case, the allowance is reduced by £1 for every £2 by which income exceeds the £150,000 limit, subject to a maximum reduction of £30,000. This means that if your income is more than £210,000 for 2017/18, you will receive only the minimum annual allowance for that year of £10,000.
Since April 2015 it has been possible to access pension savings in a defined contribution scheme on reaching age 55. However, in certain situations where pension savings have been flexibly accessed, a reduced allowance – the money purchase annual allowance – applies. This was set at £10,000 for 2016/17, but is reduced to £4,000 for 2017/18.
The lifetime allowance places an overall cap on total tax-relieved pension savings. This remains at £1 million for 2017/18.