Tax Relief on pension contributions

Tax relief available for personal contributions is the higher of £3,600 (gross) or 100% of relevant earnings.

Any contributions in excess of £40,000, whether personal or by the employer, may be subject to income tax on the individual.

The limit may be reduced to £10,000 once money purchase pensions are accessed.

Where the £40,000 (previously £50,000 for tax years to 2013/14) limit is not fully used it may be possible to carry the unused amount forward for three years.

Employers will obtain tax relief on employer contributions if they are paid and made ‘wholly and exclusively’ for the purposes of the business. The tax relief for large contributions may be spread over several years.

Pensions automatic enrolment

Auto enrolment places new duties on employers to automatically enrol ‘workers’ into a work based pension scheme. Employers are required to automatically enrol all ‘eligible jobholders’ into a qualifying pension scheme and pay pension contributions on their behalf.

Phasing in of contributions

Employer’s Staging Date Minimum Contributions
Employer (%) Total (%)
To 30 September 2017 1 2
1 October 2017 to 30 September 2018 2 5
1 October 2018 onwards 3 8

Where the employer does not make the total minimum contribution the employee is obliged to pay the balance. Employee contributions are made net of basic rate tax.

2015/16 (£) 2014/15 (£)
Automatic enrolment earnings threshold 10,000 10,000
Qualifying earnings band – lower limit 5,824 5,772
Qualifying earnings band – upper limit 42,385 41,865

State Pensions

The basic State Pension is a regular payment from the government that an individual may be entitled to when they reach State Pension age.

The basic State Pension depends on the number of years an individual has paid National Insurance or got National Insurance credits, eg while unemployed or claiming certain benefits.

To get it an individual must have paid or been credited with National Insurance contributions (NIC).

To get the full basic State Pension an individual currently needs 30 years’ worth of contributions or credits.

Currently an individual may also be entitled to the Additional State Pension. How much an individual gets depends on the number of qualifying years of NIC, the amount of earnings and whether the individual has been contracted out of the scheme.

From 2016 the State Pension will be reformed into a simple flat-rate amount. The single-tier pension will be set above the basic level of means-tested support (the amount hasn’t been set) and replace certain additions. The current 30 years qualifying years of NIC will be increased to 35 years of NIC or credits for the full amount, with pro-rating where 35 years is not achieved.

Weekly Basic State Pension 2015/16 (£) 2014/15 (£)
Single person 115.95 113.10
Married couple 185.45 180.90