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Individuals can pay as much as they like to any number of registered pension schemes and claim tax relief on contributions up to 100% of their relevant UK earnings each tax year, or £3,600 per year if their relevant UK earnings are less than this amount. However the amounts contributed to a pension each year are subject to an “annual allowance”. The annual allowance for 2009/10 is £245,000. Contributions in excess of the annual allowance are subject to a 40% tax charge.

In addition, there is a 'lifetime allowance' against which the total value of the benefits built up in the pension fund/s (including investment growth) is tested. For 2008/09, the lifetime allowance is £1,650,000. The value of any pensions savings above the lifetime allowance is subject to a 'lifetime allowance charge' as follows:
if benefits above the lifetime allowance are taken as a pension, the lifetime allowance charge on the excess amount is 25%
if benefits above the lifetime allowance are taken as a lump sum, the lifetime allowance charge on the excess amount is 55%
The lifetime allowance 'test' takes place when an individual reaches age 75 or start drawing pension benefits.
Summary of pension rules
Maximum age for taking pension benefits
75
Minimum age for taking pension benefits
50
Annual allowance
245,000
Annual allowance charge on any annual increase in pension scheme value in excess of the limit
40%
Lifetime allowance
1,750,000
Lifetime allowance charge
- on excess if taken as pension
25%

 

 

- on excess if taken as a lump sum
55%
Maximum tax-free lump sum
25%
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