Don’t get caught by the pension contributions cap

It’s easier to breach your annual pension contributions allowance than you might think. Here's how to make sure  you don't go over it.

Thousands of savers may face an unexpected tax bill and late payment charges because they have unwittingly contributed too much to their pension schemes, HM Revenue & Customs is warning. In its latest newsletter for pension scheme administrators, the tax authority said it knew some savers had not reported that they had breached the annual allowance for pension contributions and asked schemes to remind members to declare such breaches on their self-assessment tax returns.

In principle, the system is simple, with most people entitled to make up to £40,000 of contributions into private pension plans tax-free. Contributions above this cap then give rise to a tax bill at the saver's marginal rate of tax, typically 40% or 45%.

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David Prosser
Business Columnist

David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.