What Are the Pension Contribution Limits in 2024
You’re preparing for retirement, but do you know the limits on what you can put away into your pension?
In 2024, you’re allowed to contribute up to £60,000 annually, which includes your own contributions plus any tax relief. It’s important to remember that your personal contributions are capped at the greater of £3,600 or 100% of your relevant earnings, restricted by the £60,000 limit. Exceed this, and you’re facing a possible tax charge.
However, you can boost your pension savings by carrying forward unused allowances (more about this later) from the previous three years, potentially allowing contributions up to £180,000.
Understanding Annual Allowance Changes
Your Annual Allowance (AA) – the amount you can contribute to your pension each year before taxes apply – has increased. As of now, your AA is £60,000 rather than the previous £40,000 limit. This means you can put away more towards retirement before facing any tax charges.
Furthermore, your AA is gauged based on your marginal rate of income. If your adjusted income exceeds £260,000, your AA will start to taper down. However, the minimum AA you will now retain is £10,000 before it starts decreasing, up from the previous floor of £4,000. So even if you are a higher earner affected by the AA taper, you can still contribute this £10,000 annually without tax.
If you possess public sector pensions, pension tax regulations have been modified to more efficiently link aged legacy pension schemes with contemporary ones when determining your contributions against the AA. This allows for negative real growth in older schemes to offset positive growth in newer schemes.
But there’s a silver lining: you can carry forward unused allowance from the last three years, potentially boosting your pension pot by up to £180,000.
Impact of Lifetime Allowance Alterations
The abolition of the Lifetime allowance (LTA) means you’re no longer subject to the lifetime allowance charge on excess savings, which previously capped the tax-efficient benefits of your pension pot. This significant change predominantly benefits higher earners and those with substantial pension funds, removing the tax penalty for exceeding the £1,073,100 threshold set in 2022/23.
Suggested alterations also guarantee that people with protected lifetime allowances can keep accumulating benefits without forfeiting their entitlement to an increased tax-free lump sum.
The ‘lump sum allowance’ is a new limit for tax-free cash from your pension. The limit is set at £268,275 (which represents 25% of £1,073,100) or could be higher if the pension has previously locked into one of the valid protections.
With the removal of the lifetime allowance limit but freezing of the tax-free cash limit, those who continue to accrue larger pensions could see their actual tax-free cash element reduced to much lower than 25% over the next few years.
Money Purchase Annual Allowance Overview
The Money Purchase Annual Allowance (MPAA), has increased to £10,000 in 2024. This threshold applies once you’ve accessed your pension benefits flexibly.
If you trigger the MPAA, it’s important to note that further contributions to your pension are restricted, which can significantly affect your retirement planning strategy.
Under the new rules, exceeding the MPAA could result in a tax charge, as additional contributions above this limit won’t receive tax relief. You’re responsible for declaring any excess through a self-assessment tax return.
Detailed Tax Relief on Contributions
Continuing from the Money Purchase Annual Allowance, you’ll find that tax relief on contributions is a significant benefit provided by the UK pension system. Here’s a quick guide to understanding how tax relief applies within the pension contribution limits:
| Contribution Type | Limit | Tax Relief |
|---|---|---|
| Personal | Higher of £3,600 or 100% of earnings | Up to annual allowance (£60,000) |
| Employer | No specific limit | Up to annual allowance (£60,000) |
| Carry Forward | Up to £180,000, including previous years | Subject to past annual allowances |
Pension Schemes and Relevant UK Earnings
You’ll need to understand what qualifies as ‘relevant UK earnings’ when considering your pension contributions to various schemes in 2024. Relevant UK earnings include employment income, profits from self-employment, redundancy (above £30,000), and benefits In Kind, which are chargeable to tax. All relevant earnings can be found here
When you’re calculating how much you can contribute to pension schemes with tax relief, remember it’s the higher of £3,600 or 100% of your relevant UK earnings, up to a £60,000 cap.
In the right circumstances, consider the Carry Forward rule, which allows you to contribute more by using any unused allowance from the past three years.
Carry Forward Option for Pension Allowance
If you’ve not used up your pension Annual Allowance in the last three years, you can carry forward the unused amount to increase your contribution limit for 2024. This means if your earnings allow, you could potentially top up your pension by utilising any unused allowance from the previous three tax years.
To take advantage of this carry-forward rule, you must have been a member of a Registered Pension Scheme in those years.
Remember to exhaust this year’s allowance first before tapping into the past. It’s important to keep in mind that any contributions exceeding the Annual Allowance will attract a tax charge. Always declare excess contributions on a self-assessment tax return.
For help with Carry Forward calculations, book a call.
Conclusion
In 2024, you’re working with a £60,000 Annual Allowance for your pension contributions, inclusive of tax relief. Exceeding this limit triggers a tax charge, so track your investments carefully.
Remember, with the Carry Forward rule, you might inject up to £180,000 by utilizing unused allowances from the last three years.
Don’t forget, the amount you personally contribute can’t surpass 100% of your relevant UK earnings or £3,600, whichever’s higher.
Plan smart and maximise your retirement savings without the tax bite.
