The current basic state retirement pension is £107.45 per week. The Chancellor announced an increase of 2.5% from April 2013, which will see the weekly rate rise to £110.15. The additional state pension (together with some other benefits, particularly for the disabled) will continue to be increased in line with inflation.
Low state pension rates and the availability of significant tax reliefs have encouraged many people over the years to save in pension plans: company pension schemes, group personal pensions or individual personal pensions. For high earners, maximising pension savings has been a part of sensible tax and retirement planning. For some people, an effective tax relief of 60% is achievable before 6 April 2013.
In the past, tax relief on pension savings was limited by capping tax relievable contributions at a percentage of earnings. In more recent years, the Government has set a limit on annual and lifetime pension savings, beyond which tax advantages are, in effect, clawed back. For the current tax year, and for 2013/14, the annual limit is £50,000 gross (the charge is at your marginal income tax rate), and the lifetime limit is £1.5 million (with a charge at 55% on excesses drawn as lump sums, 25% where excesses are drawn as pension). Care must be taken, therefore, and it is particularly important to note that the Annual Allowance applies to the ‘pension input period’ (PIP) ending in the tax year – you may already be in your 2013/14 PIP.
For the purpose of the Annual Allowance Charge on money?purchase schemes and most personal pension plans, the measured value is the gross amount contributed to the PIP by the individual and, if applicable, the employer. As regards defined benefit schemes, one looks at the year’s increase in benefit.
For the Lifetime Allowance Charge on money-purchase schemes and pension plans, the measured value is the value of the fund when benefits are taken. For defined benefit schemes, it is 20 times the annual pension rate plus the value of any lump sum drawn.