‘A’ Day (the Appointed day) arrived on 6th April 2006 and brought with it sweeping and radical changes in relation to pension legislation.
This has created a single universal regime that replaced the previous eight tax regimes and the changes affect all savers in occupational and personal pension schemes, employers and financial advisers.
Pension simplification introduced two new controls, the pension Lifetime Allowance (LA) and pension Annual Allowance (AA).
The Lifetime Allowance is a limit on the amount of pension benefit that can be drawn from pension schemes – whether lump sums or retirement income – and can be paid without triggering an extra tax charge. The LA since April 2018, is £1,030,000 and it is likely to increase in line with inflation at the end of the current tax year.
The annual allowance is a limit on the amount that can be contributed to your pension each year, while still receiving tax relief. It’s based on your earnings for the year and is capped at £40,000
Most individuals are able to fund up to these limits with the possibility to also carrying forward unused AA from the previous 3 years. Exceeding the LA or the AA will simply trigger a tax charge.
In addition another raft of changes introduced in April 2016 also gives individuals further and greater flexibility to access their pension savings from age 55.
Pensions are a long term investment. You may get back less than you put in. Pensions can be and are subject to tax and regulatory change therefore the tax treatment of pension benefits can and may change in the future.