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Pension Contributions Get Complicated

Up until 6 April 2015, pension contribution limits, known as the annual allowance, were relatively simple.

In essence you could contribute up to £40,000 (gross) per annum either via an employer, individual or a combination of both. In addition, where you had unused annual allowance (AA) from the previous 3 tax years, you could carry forward the unused allowances to the current tax year.

State Pension Top Up

From October 2015, existing pensioners and those retiring before 6 April 2016, will have the option of making additional National Insurance Contributions (Class 3A) in order to increase their state pension by a maximum of £25 a week / £1,300 a year.

The income is taxable, linked to inflation (CPI) and 50% can be inherited by a surviving spouse. The scheme operates like an annuity in the sense that the individual pays a lump sum in exchange for a guaranteed income for life. The amount of the lump sum required will depend on the individual’s age.