Tax-free pensions contributions limit to be announced tomorrow

The government is due to announce the tax-free annual pension contribution limit to tomorrow.

Many expect that the announcement will confirm that the annual allowance will be £40,000.

Also expected in the announcement is clarification on the valuation factors applied for defined benefit (DB) schemes that will work out what the deemed contribution is for which a tax charge can be calculated.

Henry Dene, principal, Punter Southall, said: “The big issues are whether they have anything within the rules which relate to contribution spikes for DB schemes.

“The contribution spikes could be somebody who gets promoted, or someone who takes early retirement or ill health retirement, because that will create a spike in contributions, which could create a tax bill for an individual who is nowhere near a high earner.”

In addition, the industry is keen to find out whether these changes are neutral in terms of revenue generation compared with changes to tax relief, and whether the 50% tax relief may be removed altogether.

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