There are certain tax rules regarding pension payments - these are imposed by HM Revenue & Customs (HMRC). Some that may impact you are:
- The maximum amount you can pay into your pension plan. If you are employed and you earn under £245,000 (tax year 2009/10) you are able to pay in 100% of your salary, or £3,600 - whichever is greater. If you are not working you can pay in £3,600 each year, including tax relief. This is known as the Annual Allowance.
- If you earn over the £245,000 limit and you wanted to pay in 100% of your earnings you wouldn't get tax relief on any payment over the £245,000 limit. You'd pay tax on these payments. Standard Life does not accept payments which are not eligible for tax relief.
- A little extra help from the tax man. If you are a basic-rate tax payer then the tax man will top up every pension payment you make, within the Annual Allowance, by 20% (tax year 2009/10).
- If you're a higher-rate taxpayer you'll need to reclaim the extra tax relief through your tax return. For further details, check out tax
benefits. If you earn over £130,000 a year, you should also read about the recent tax changes to pension plans announced in the 2009 budget.
- The amount you can take as a tax-free lump sum. HMRC let you take a tax-free lump sum when you reach retirement age of up to 25% of the fund value.
- Your pension will be taxed as earned income.
Tax and legislation are likely to change in the future. The information given here is based on our current understanding of law and HM Revenue & Customs practice. Tax relief may alter and its value depends on your financial circumstances.
