Paying Tax if Your Pension Savings are Too High

If your pension savings are more than your annual allowance for the tax year, and you do not have unused annual allowances from the 3 previous tax years to cover the difference, you’ll have to pay tax on the excess.

You’ll get a statement from your pension provider telling you if you go above the annual allowance. If you’re in more than one pension scheme, ask each pension provider for statements. This will help you work out how much you’ve gone above the allowance.

Piggy BanksThere is a calculator on the HMRC website but we can, of course, help you check that you have not exceeded the limits.

As you can see from the above, despite the “simplification” of pensions by George Osborne in 2015, the system is still extremely complicated and we are expecting yet further reforms in future Budgets. Nevertheless, saving in a pension is still very tax-efficient as for a higher rate taxpayer the net cost of saving £10,000 in a pension is currently £6,000.