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   Case Study
   Linda will earn £60,000 in 2021/22. She will invest £12,500 into her personal pension policy. She is entitled to the basic personal allowance and has no other income.
Linda will pay her pension provider a premium, net of basic rate tax relief of £10,000. She is also entitled to higher rate tax relief on the gross premium, amounting to £2,500.
As Linda is an employee, we can ask HMRC to give the relief through her PAYE code. Otherwise, we would claim in Linda’s 2022 Tax Return. Thus the net cost to Linda of a £12,500 contribution to her pension policy is just £7,500.
 Scotland has income tax rates which are different from those that apply in the rest of the UK. Pension payments by Scottish taxpayers paying at the starter rate of 19% will be treated in the same way as 20% taxpayers in the rest of the UK. Scottish taxpayers who pay tax at 21%, 41% or 46% claim the difference between these rates and the basic rate of 20%. Contact us for specific advice.
The lifetime allowance
Where total pension savings exceed the £1,073,100 lifetime allowance at retirement (and fixed, primary or enhanced protection is not available), a tax charge arises:
Taxpayers have total freedom to access a pension fund from the age of 55. Access to the fund may be achieved in one of two ways:
y allocation of a pension fund (or part of a pension fund) into a 'flexi-access drawdown account' from which any amount can be taken, over whatever period the person decides
y taking a single or series of lump sums from a pension fund (known as an 'uncrystallised funds pension lump sum').
When an allocation of funds into a flexi-access account is made the member typically will have the opportunity of taking a tax-free lump sum from the fund.
The person will then decide how much or how little to take from the flexi-access account. Any amounts that are taken will count as taxable income in the year of receipt.
Access to some or all of a pension fund without first allocating to a flexi-access account can be achieved by taking an uncrystallised funds pension lump sum. The tax effect will be:
y 25% is tax-free
y the remainder is taxable as income.
Money Purchase Annual Allowance
The government is alive to the possibility of people taking advantage of the flexibilities by 'recycling' their earned income into pensions and then immediately taking out amounts
from their pension funds. The Money Purchase Annual Allowance (MPAA) sets the maximum amount of tax-efficient contributions an individual can make in certain scenarios. The allowance is set at £4,000 per annum, with no carry forward of the allowance to a later year if not used in the year.
The main scenarios in which the reduced annual allowance is triggered are if:
y any income is taken from a flexi-access drawdown account; or
y an uncrystallised funds pension lump sum is received.
However, just taking a tax-free lump sum when funds are transferred into a flexi-access account will not trigger the MPAA rule.
 Tax charge (excess paid as annuity)
  Tax charge (excess paid as lump sum)
  25% on excess value, then up to 45% on annuity
55% on excess value
 The lifetime allowance will increase each year in line with CPI.
Accessing your personal pension fund
Taxpayers have the option of taking a tax-free lump sum of 25% of the fund value and purchasing an annuity with the remaining fund, or opting for income drawdown which offers further flexibility in how the fund is used.
An annuity is taxable income in the year of receipt. Similarly any monies received from the income drawdown fund are taxable income in the year of receipt.
 Your next steps: contact us to discuss...
y Calculating how much you need to save to ensure you enjoy a comfortable retirement
y Tax-advantaged saving for your pension
y Saving in parallel to provide more readily accessible funds
y Saving in employer and personal pension schemes y Using your business to help fund your retirement
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