Following the recent changes, where pension benefit drawing begins after April 2015, the current annual allowance of £40,000 (the amount of contribution on which tax relief is given) will automatically reduce to £10,000 per annum.
In the modern world it is not unusual for people to want to access their tax free lump sum whilst still making contributions for their later life, and this could be particularly true for business owners or your contractors who typically make pension contributions via their company.
The contributions may currently attract a corporation tax deduction which shelters business profits from tax whilst not triggering any personal income tax charges until such time as a taxable pension drawdown commences.
Continuing with contributions whilst accessing tax free cash from the pension pot could be seen as the best of both worlds. For those over the age of 55 at 5 April 2015 this is achievable if you act before that date.
The reduction to annual allowances will not affect taxpayers already in drawdown and does not take effect until 6 April 2015. Accordingly, there is an opportunity to act now so as to protect your £40,000 per annum contribution limit whilst still having access to your pension fund and maintaining the flexibility of drawdown.
If you would like to talk further about the pension reform changes, please contact us on 0845 606 9632.