This is the maximum amount of tax privileged pension savings you can make each year. It is based on your earnings for the year and is capped at £40,000. Under a defined contribution (money purchase) scheme, this is simply the value of the contributions paid by you and your employer during a tax year. However, under a defined benefit (final salary) scheme it is the increase in the value of a member’s rights during the tax year. There is a tax charge on the amount of any contribution paid (by the member, employer or a 3rd party) in excess of the Annual Allowance each year.
Annual Allowance Charge
This charge is due on the value of the pension input amount that is in excess of the Annual Allowance plus any unused Annual Allowance carried forward from the previous three tax years or Money Purchase Annual Allowance (if applicable). The rate of charge is the same as the individual’s marginal rate of Income Tax.
An annuity is simply a series of regular payments that someone receives. In pension terms Lifetime Annuities must meet a number of criteria:
- Lifetime Annuities can only be provided by life assurance companies
- Payments must be made to the pensioner at least annually for the lifetime of the pensioner
- The annual rate of annuity can go down as well as up, as agreed at outset.
- The annuity can be paid after the pensioner’s death for a period agreed at the outset. There is no longer a requirement to have to purchase a lifetime annuity with pension savings.
Possession that has intrinsic value.
A distinct category of investment such as bonds, equities or cash.
The practice of distributing an investment across different types of investment to meet investor requirements or respond to market conditions.