Apr 17, 2019 | STEPHEN JONES

Pension rules for high earners

Sometimes it’s important to take a moment to consider where you are in terms of your career. Recognise your achievements and how far you’ve come. A brief realisation that things are going well. Perhaps the business you run, or are part of, is flying high and you can start to reap the rewards of your hard work.

A balancing act

With success comes the responsibility of balancing financial priorities – school fees, mortgages, investments – the list goes on. The clients we meet often don’t have much time to consider their pension and how to make the most of the annual allowance. The priority is usually a bigger house before bigger pension contributions and we hear the phrase ’we’ll contribute when we’re earning more’.

Personal allowance 

The substantial reduction and new, complex tapering rules mean the old tactic of ‘catching up’ in a handful of years in the run up to retirement is no longer an option.

In 2010/11 the annual allowance was £255,000. For those in the high earnings category it could now be as little as £10k.

The tapering of today’s standard £40,000 annual allowance starts after your total income is in excess of £150,000 gross, reducing by £1 for every £2 of excess income. This means that by the time your total earnings hit £210,000 gross, your annual allowance is tapered to just £10,000. As we mentioned the rules are complex and we have simplified the figures for these explanations – it’s always worth letting a professional take a look.

So, the next time you’re taking a brief moment to consider your current circumstances, spare a thought for your pension contributions and how you can make the most of these.

The sweet spot

When your total income is between £100,000 gross to £150,000 gross – not only do you benefit from tax relief of up to 60% but you also limit the extent of tapering, if you’re affected by it at all.

We know from experience that many people shy away from making the most of the carry forward option because the rules are complex. There is often a limited window of opportunity to take advantage of and you could end up in a position with an annual allowance so small that you’re being taxed on your employer contributions, let alone your own.

Let us help 

Although this can seem daunting and complicated Cooper Parry Wealth have in-house specialists who can help you navigate the mine field.

We can help you get your calculations right and show you how prioritising contributions now, will pay off in the future. We do this by showing you your lifetime cashflow mapped out based on your personal circumstances.

Maximising your contributions is important, but we can also explain the alternatives such as lifetime ISAs.

Our team are here to help so if you’re looking for peace of mind and efficiency when it comes to managing your pension, get in touch.

This content is not personalised investment advice, and Cooper Parry Wealth can take no responsibility for investment decisions you may make as a result of this information.

This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice as at 14 August 19. You are recommended to seek competent professional advice before taking any action. The value of investments and the income from them can go down as well as up, and you may get back less than you originally invested. Past performance is not a guide to the future. The investments described are not suitable for everyone. This content is not personalised investment advice, and Cooper Parry Wealth can take no responsibility for investment decisions you may make as a result of this information. Tax and estate planning advice are not regulated by the FCA.


Send an email to us at iant@cooperparry.com