A Day: Everything's changed!
In April 2006, the government simplified the pension contribution process, Industry insiders dubbed these sweeping changes as A-Day. So what does it actually mean?
Previously, your contributions would have been limited to a percentage of your earnings, now there’s one rule for all, which is of particular assistance to people in the 20 to 40 age bracket that may have put off investing in a pension. These groups can now put in larger sums later, instead of saving modestly, without being penalised for doing so. Remember, however, that the benefits of saving early can be substantial.
You can now invest up to 100% of your earnings, or £3,600 whichever is higher.
However, two main limits apply:
· Annual Limit
If you pay in more than £245,000 (2009 / 2010 tax year) then you will have to pay tax on any payments over that amount.
· Lifetime Limit
If your total fund value, including every pension you hold, is worth more than £1.75 Million (2009 / 2010 tax year) when you retire, then you will have to pay tax at a punishing 55% on any value above this lifetime limit.
Any money your employer pays into your pension will count toward these limits.