Eligibility
If you are aged under 75 and resident in the UK, you should be eligible to contribute to a pension. This includes those who do not currently earn a salary, even children.
Contributions
If you’re employed or self-employed, you can contribute up to 100% of the value of your relevant UK earnings (salary and other earnings), up to a maximum of £235,000 for 2008/9 tax year (this will increase by £10k a year until 2010/11). Contributions above this annual limit are allowed but will be taxed. You can contribute into any number of pension schemes (personal and/or company) each year.
Tax relief
You’ll receive tax relief on your contributions – so for higher rate tax payers a £20,000 investment would cost just £12,000.
20% (basic rate tax relief) is added by the government to all contributions
As well as the basic rate tax relief, higher rate tax payers can claim up to a further 20% tax relief via their tax return
Pension pots – big & small
There’s a lifetime limit on the size of your pension pot - £1.6 million for the tax year 2008/9, which wil rise each year until it reaches £1.8 million in 2010 (thereafter it will be reviewed every five years ). If your fund exceeds this, you’ll incur substantial tax charges - 55% if the excess benefits are taken as a lump sum and 25% if taken as income. The income will then be subject to income tax at your highest rate.
If your total pension pot is less than £15,000 you can take it all as a cash sum between your 60th and 75th birthday. The first 25% is tax-free; the remainder is taxed at your usual rate.
Retirement age
By April 2010, the age at which you can start drawing your pension will rise to 55. If you need to, pension benefits can be deferred until you are up to 75 years old.
You may still be able to take your pension before age 55 in certain circumstances, for example if you retire through ill-health. Your pension administrator will be able to tell you what your scheme allows.
The rules around pension investment will depend on individual circumstances and tax rules may change in the future. To find out the latest information, visit the DirectGov† website.
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