New Employee Pension Tax Trap

The start of the new tax year brought about an increase in the minimum contributions that need to be made to your workplace pension scheme. Whilst it’s good news that more money is going into your pension there can be a nasty tax trap for those earning over £150,000.

At this level of earnings your £40,000 pension Annual Allowance (the amount that can be paid into a pension) starts to reduce by £1 for every £2 you are over, until you are left with an allowance of just £10,000 per annum. This is called the Tapered Annual Allowance.

I have come across a number of clients whose employer is paying them much greater pension contributions based on full pay. Without realising it you could be contributing more than your reduced Annual Allowance. This will result in a nasty tax bill.

As always you need to get informed. Pension taxation is a minefield and there are exams for Financial Advisers on pension taxation alone!

Here are a few steps to take:

#1 – Check with your company what pension contributions are being paid.

#2 – Seek financial advice.

#3 – Ask your employer for alternative remuneration if you are caught by the trap.

Carl Roberts

For your own personal Financial Director to run your family finances call:

Carl Roberts FPFS, Chartered Financial // 01908 592544 // 07702 965275

RTS Financial Planning Limited is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales. Registration number 10619163. 21 Fosters Lane, Bradwell, Milton Keynes, MK13 9HZ

Risk warning: Stock market linked investments and any income from them, can fall as well as rise and are not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.

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