Tony Granger highlights the maximum age to fund a pension plan, and the maximum age at which a pension can be taken.
The two main categories of pension schemes are defined benefit (DB) (such as a final salary pension scheme, where the employer makes contributions and the employee can also contribute, depending on the type of scheme; the value for the retiree is determined by a set formula) and defined contribution (DC) pension schemes, where a set contribution is made within tax limits – here the value of the pension scheme is determined by the value of its investments.
Most DB schemes have a normal retirement age of 65. This is usually when your employer stops contributing to your pension and your pension starts to be paid. Depending on your scheme, you might be able to take your pension from the age of 55, but this can reduce the amount you get. You can defer taking pension benefits if you continue working beyond retirement, but this depends on the rules of the pension fund.
The default retirement age in workplace schemes will match the state pension age, but you can choose to take your pension from the age of 55.
The main small and medium-sized business DC pension schemes will be group personal pensions, money purchase pension schemes, Nest, group self-invested personal pensions, stakeholder schemes, and small self-administered pension schemes.
Contribution limits
Employer contributions
The employer can pay any amount of pension contributions into a registered pension scheme for an employee and an ex-employee. This is regardless of salary.
The position of the employee
Whilst employer contributions are not subject to an upper limit, there are limitations on what can be paid on behalf of the employee that may have tax consequences.
Annual and lifetime allowances
The employee can receive contributions up to the maximum standard annual allowance of £40,000 less any annual allowance restrictions and payments to other pension schemes.
Pension contribution checks must be made against the annual allowance (£40,000 maximum) and lifetime allowance (LTA) – currently £1,055,000 (from April 2019).
The annual allowance limits the total of all contributions, including personal, employer and third-party contributions. It also limits the benefits build up in defined benefit schemes (such as final salary schemes).
The annual allowance may be tapered downwards according to earnings and type of pension scheme invested into. It could be as low as £4,000 for the money purchase annual allowance.
Tapered annual allowance applies if ‘adjusted income’ is more than £150,000 and ‘threshold income’ is more than £110,000 – both apply to reduce the £40,000 standard annual allowance to a minimum of £10,000 annual allowance.
Retirement age
For DC pension funds, there is now no maximum age at which contributions need to cease (the previous contribution limit was to age 75 when one had to annuitise funds).
An individual can retire from a pension fund at any time over age 55 and utilise drawdown to take tax-free cash or pension income. Alternatively, you may wish to purchase an annuity or take your whole pension fund as cash.
Carry forward
The annual allowance can be expanded by using carry forward, which accumulates the unused annual allowances from the past three years and added to the current year’s annual allowance. You must have had a registered pension scheme during that period to carry forward.
Money purchase annual allowance
Where a scheme member has flexibly accessed any of their pension scheme benefits, the annual contribution allowance falls to £4,000. If you have both DB and DC arrangements and flexibly access the DC scheme, the alternative annual pension allowance is £36,000 (in 2019/20).
Employees who have opted for protection
If you protected your lifetime allowance (at a higher level than the current one), you are precluded from making any further pension fund contributions to new or current arrangements if you wish to retain your protections.
Practical tip
Check to see if you and your employer are making correct contributions. Accessing benefits in one scheme could reduce contribution funding levels in other schemes. Obtain independent pensions and financial advice based on your personal circumstances.
The employer can pay any amount of pension contributions into a registered pension scheme for an employee and an ex-employee. This is regardless of salary.
The position of the employee
Whilst employer contributions are not subject to an upper limit, there are limitations on what can be paid on behalf of the employee that may have tax consequences.
Annual and lifetime allowances
The employee can receive contributions up to the maximum standard annual allowance of £40,000 less any annual allowance restrictions and payments to other pension schemes.
Pension contribution checks must be made against the annual allowance (£40,000 maximum) and lifetime allowance (LTA) – currently £1,055,000 (from April 2019).
The annual allowance limits the total of all contributions, including personal, employer and third-party contributions. It also limits the benefits build up in defined benefit schemes (such as final salary schemes).
The annual allowance may be tapered downwards according to earnings and type of pension scheme invested into. It could be as low as £4,000 for the money purchase annual allowance.
Tapered annual allowance applies if ‘adjusted income’ is more than £150,000 and ‘threshold income’ is more than £110,000 – both apply to reduce the £40,000 standard annual allowance to a minimum of £10,000 annual allowance.
Retirement age
For DC pension funds, there is now no maximum age at which contributions need to cease (the previous contribution limit was to age 75 when one had to annuitise funds).
An individual can retire from a pension fund at any time over age 55 and utilise drawdown to take tax-free cash or pension income. Alternatively, you may wish to purchase an annuity or take your whole pension fund as cash.
Carry forward
The annual allowance can be expanded by using carry forward, which accumulates the unused annual allowances from the past three years and added to the current year’s annual allowance. You must have had a registered pension scheme during that period to carry forward.
Money purchase annual allowance
Where a scheme member has flexibly accessed any of their pension scheme benefits, the annual contribution allowance falls to £4,000. If you have both DB and DC arrangements and flexibly access the DC scheme, the alternative annual pension allowance is £36,000 (in 2019/20).
Employees who have opted for protection
If you protected your lifetime allowance (at a higher level than the current one), you are precluded from making any further pension fund contributions to new or current arrangements if you wish to retain your protections.
Practical tip
Check to see if you and your employer are making correct contributions. Accessing benefits in one scheme could reduce contribution funding levels in other schemes. Obtain independent pensions and financial advice based on your personal circumstances.
