Yes. You can only get income tax relief on personal contributions up to a certain amount, and there are also annual and lifetime limits on how much you can save into all your pensions.

Tax relief on personal contributions

You can claim income tax relief on personal contributions (i.e. contributions you pay, rather than those paid into your pension by your employer) up to the value of your net relevant earnings during the relevant tax year or your annual allowance whichever is lower. If you don’t have any net relevant earnings, you can still get tax relief on contributions up to £3,600 each year. This value includes the HMRC tax relief. As a consequence, so you can pay in up to £2,880, and HMRC will add £720 giving you a total contribution of £3,600.

Contributions paid directly into your pension by your employer may or may not be paid with income tax being deducted. If they are made under a salary sacrifice arrangement, then they are not eligible for tax relief. Otherwise, the contributions your employer paid into Collegia on your behalf are eligible for income tax relief.

Annual allowance

The government applies a tax charge, called the annual allowance tax charge, if the ‘total contributions’ to your pension savings for a given tax year exceed your annual allowance. Your ‘total contributions’ includes all your personal contributions, any income tax relief from the government and contributions paid by your employer. In the tax year 2020/21 the annual allowance is £40,000. This amount is dependent on the level of your earnings and decreases should your earnings exceed a specified amount. If you are unsure of your annual allowance, we recommend you seek professional advice.

Once you start taking income benefits from your pension savings, you will normally be subject to what is called the Money Purchase Annual Allowance restricting the level of your contributions to “money purchase” pensions, including your Collegia Personal Pension.

The charge for exceeding the annual allowance is set at your marginal rate of income tax, as if the excess amount were added to your other earnings.

Before you first access your pension savings, you can normally carry forward any unused allowance from up to three previous tax years, in order to increase your available allowance. Carry forward is available as long as you were a member of a UK registered pension scheme at some point during each tax year.

The lifetime allowance

Pensions also have a lifetime allowance which, as of the 2020/21 tax year, is £1,073,100. If the total of all your pension savings exceeds the lifetime allowance when you take benefits a tax charge applies, called the lifetime allowance charge.

The amount of the lifetime allowance charge depends on how you take the excess benefits from your pension. If you take the excess as a lump sum it will be subject to a 55% tax charge. If you use the excess to provide an income it will be subject to an immediate 25% tax charge, and the income you receive will be subject to income tax.

If your total pension savings exceed the new lower limit, you may be able to apply for lifetime allowance protection.
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