Annual pensions limit?

caronoel

Hello

I am getting close to maxing out my £1m lifetime allowance on my pension, but have about 12 years to go until I hit 55.

My current income is just over £150k, probably about another £10k in the form of rental income, and my employer contributes another £25k to my pension in the form of salary sacrifice.

I’ve been maxing out my annual contributions over the past few years, so will have limited benefit from carry forward.

Question is: from a tax perspective, what is the optimum amount I should contribute annually? Is £25k too much, or can I top it up a bit?

EdSwippet

Before you go any further, you'll want to be sure that you are not already blowing past your pension annual allowance thanks to the last Chancellor's laughably complex allowance taper rules that took effect in April.

By my simplistic calculations, from the numbers you've given your pension annual allowance may be as low as £22.5k. That could put you over the annual allowance already, and so subject to a tax charge absent any carry forwards buffer.

In niche circumstances, going over the pensions annual allowance may not be the worst option. Going over the lifetime allowance can sometimes also not be terrible, but it varies. But going over both can become a recipe for extreme tax rates that may reach more than 100% (yes, really!) if not managed closely. You need to take a very close look at your circumstances here -- employer match, DB versus DC, salary sacrifice, and so on -- to discern your best way forwards.