Flexibility of contributions
We do not impose a minimum level of contribution, which means that you can pay into your scheme on whatever basis you want. You can pay a one off contribution to set up the plan, regular contributions which can be amended or stopped at any time, contributions on an ad hoc basis or no contributions at all (instead relying on transfers from other schemes).
Tax relief on contributions
If you are a UK resident then contributions to your scheme will benefit from tax relief up to certain levels. In order to determine the maximum level of contribution that will receive tax relief, you must look at two factors. The first is the annual allowance and the second is the type of contribution being made.
What is the annual allowance for contributions?
The Annual Allowance is the maximum amount of contributions (personal and employer) that can be made to registered pension schemes each year which will receive tax relief. The Annual Allowance is currently £60,000, although it will be lower if the annual allowance taper (applicable to high earners), or the Money Purchase Annual Allowance rules (applicable for those who flexibly access their pension) apply. Details of these reductions in the Annual Allowance can be found below.
You will exceed the annual allowance if, for any tax year the total of all contributions (paid by you, on your behalf and by your employer) to your registered pension schemes when added to the increase in benefits under any final salary scheme exceeds £60,000.
What is the annual allowance taper?
If you have adjusted income of over £260,000 and your threshold income is more than £200,000 your annual allowance will be reduced by £1 for every £2 by which your adjusted income exceeds £260,000, subject to a maximum reduction of £50,000.
Please refer to our Tapered Annual Allowance Information Sheet for a detailed explanation and examples.
Can I carry forward unused relief from previous years?
Subject to having been a member of a registered pension scheme (even if you did not contribute anything), you can carry forward any unused Annual Allowance for a period of up to 3 years and make top-up contributions in later years. You can Carry Forward a maximum of the Annual Allowance for each of the previous three tax years, and this amount is reduced by the amount of the Annual Allowance you used during those years.
The carry forward of unused annual allowance is available for those subject to the annual allowance taper however the amount available will be based on the unused tapered annual allowance.
If the Money Purchase Annual Allowance rules apply, then you will not be able to use Carry Forward.
Money Purchase Annual Allowance Rules (MPAA)
Flexibly accessing your pension savings will trigger the MPAA rules which will reduce your annual allowance from £60,000 to £10,000 per annum for your SIPP or SSAS. The MPAA rules will apply from the day after the trigger event occurred. The MPAA rules also prohibit the ability to carry forward any unused annual allowance.
The following actions will trigger the MPAA rules as you will have flexibly accessed your pension savings; taking an income under Flexi Access Drawdown (FAD); taking an Uncrystallised Funds Pension Lump Sum (UFPLS); taking a stand alone lump sum with Primary Protection; taking income under a flexible annuity. Details can be found in our Member Benefits technical pages.
Type of contribution
Contributions to a pension scheme can either be made by a member personally or by their employer. The level of contribution that attracts tax relief will depend on which of these two types of contribution it is.
Personal contributions to SIPPs, whether the member is an employee or self-employed, are paid net of basic rate income tax.
If the member is UK resident, they will be eligible to have tax relief on the total amount of contributions which do not exceed the higher of £3,600 gross, and 100% of relevant UK earnings in the tax year they were paid (subject to the Annual Allowance above).
We will reclaim basic rate tax relief from H M Revenue & Customs (HMRC) and add it to the Plan (this usually takes about six weeks). If the member is a higher rate tax payer, then they can reclaim the higher rate tax through their personal tax return.
Personal contributions to SSASs are usually paid gross by deduction from the member’s salary.
Employers can also contribute to the pension scheme and may do so whether or not the member makes personal contributions. All employer contributions are paid gross. For employer contributions to be treated as an allowable expense against Corporation Tax they must be ‘wholly and exclusively for the purposes of the business’ (subject to the Allowances above). HMRC has provided guidance on what level of contribution would attract tax relief, but there are no fixed rules. The employer’s local inspector will make the decision.