Money
Pensions
Pension rules - all right for some
Pension rules established back in April 2006 mean that someone who earns £460,000 a year can invest that much in a pension before April 6 and get full tax relief - worth £184,000 - on that sum, writes Paul Lewis
The maximum amount that can be put into a scheme is capped at your earnings for the year. But for high earners there is an upper limit. In 2007/08 it is £225,000 and it rises to £235,000 in 2008/09.
But an odd loophole means that someone investing before the end of the tax year could actually put in £460,000, using up the allowance for this year and next.
Although the maximum is fixed at your year’s earnings, the money paid into the pension does not have to be from earnings. So any capital from an investment or inheritance can be paid in and earn full tax relief.
A lump sum of £460,000 could be paid in and the lucky top earner would then be given back £184,000 in tax relief leaving a net contribution of £276,000.
This massive subsidy from the taxpayer is in sharp contrast to the small payments that will be made into the new Personal Accounts – the pension scheme expected to start in April 2012.
Contributions to that will be capped at £3,600 a year, and for most people less than half that amount will be paid in each year when the scheme is fully in operation in 2014.
Of the average £1,500 a year that will go into the scheme, barely £200 will come from taxpayers. That is hardly enough to provide a decent pension in retirement.
* Paul Lewis' opinions are his own and for general information only. Always seek independent financial advice.
* This article first appeared in the March 2008 edition of Saga Magazine.
