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What are the recent changes in pension contributions?

The rules around pension contributions have changed dramatically over the years, with the most recent changes coming into effect from 6 April 2020. The Chancellor increased the threshold income from £110,000 to £200,000, mainly due to the fact the original limits were effecting a lot of high paid NHS workers and as such, the increase has meant that many of those affected by tapering previously can now regain the maximum annual allowance of £40,000 (gross) per tax year.

What are the recent changes in pension contributions?
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For those earning over £200,000, their annual allowance may be restricted in that tax year. For every £2 of adjusted income that exceeds £240,000, £1 of the annual allowance may be adjusted/lost. However, there will be a cap on the reduction (or tapering) of £36,000, so that if you have adjusted income of £312,000 or greater, you will have a minimum annual allowance of £4,000, as shown in the table below:

There is a complicated calculation in respect to the adjusted income, therefore advice should be taken and working together with your trusted professional contacts is important to ensure that the client receives the right outcome.

 Tax-efficiency using pension contributions

 From a personal taxation perspective, the personal allowance is a valuable benefit, as it helps to reduce the level of income tax payable. Unfortunately, not many people know that if you have an adjusted net income of over £100,000, you lose £1 for every £2 until the entire personal allowance is lost for earnings in excess of £125,140. By losing the personal allowance it adds an extra 20% of tax onto the income earned between £100,000 and £125,140, leading to an effective rate of 60%(!) on this element of earnings.

 Negotiating how remuneration is paid is important, as an increase in salary could be met through non-cash benefits, company cars, private health care and more commonly, pension contributions.

 Following the most recent budget in October 2021, the Chancellor announced that there would be some tax rises which will affect both employers and employees. The one which is going to impact on both is the rise in National Insurance Contributions (NIC) by 1.25%, this reflecting the new Health and Social Care Levy, which comes into effect from 6 April 2023.

 This will see an increase from 13.8% to 15.05% for employers and from 12% to 13.25% for employees.

 One way to combat against the increase is to contribute via salary sacrifice, which allows employees to exchange part of their annual salary for a pension contribution. This does mean that one would earn slightly less and advice on how this may affect one’s position for such things as mortgages should be taken. However it does mean an increase in their pension savings and tax savings on NIC and income tax.

 Another significant change that is due to come into effect from 1 April 2023 is the rise in corporation tax, from 19% to 25% on annual profits over £250,000.

 With employer pension contributions counting as an allowable business expense, if there is capacity within the company then the planning should always be considered, with the tax savings shown below (based on 2021/22 tax rates):

We have assumed the annual tax-free dividend allowance has already been utilised and if further dividends were paid this would fall into the higher rate of tax. As you can see the tax saving is significant and with corporation tax increasing to 25%, advisers should be aware of this strategy.

 Individuals can still carry forward unused annual allowance from earlier tax years to the current tax year, subject to certain conditions:

 It is only possible to use carry forward after the current year’s allowance has been fully used up.

  1. Unused allowance can be carried forward to the current tax year from the previous three tax years – starting with the earliest year first.
  2. The individual had to have been a member of a registered pension scheme at some point during the carry forward year in question. However, there is no requirement for any contributions to have been made to the scheme in that year.

 This means that for those with sufficient levels of earnings or who are business owners, they could really maximise contributing into their pension savings, as shown in the example below:

Bespoke pension planning: case study

 At Mattioli Woods, while we are wealth managers our technical expertise is still in providing bespoke pension planning via SIPP and SSAS structures. These can interlink the aspirations of the business with the personal objectives of the individuals, mainly to have less reliance on the business, in case an unexpected event arises.


A husband and wife owner managed limited company wish to be more tax-efficient and focus on asset preservation.

With turnover projected at £2.5 million and pre-tax profits of £250,000, the company also owns the commercial property to which it operates from, worth £250,000 and mortgage free.

Both clients have carry-forward available and have not contributed during the current tax-year nor the three previous tax years, effectively giving them scope to contribute from the business £160,000 each.


Through the advice Mattioli Woods provides the client, they establish a joint SIPP and consolidate their personal pension arrangements, which totalled £15,000.

The next step is to obtain a market valuation of the commercial property, due to it being a connected purchase, appoint a suitable solicitor and then proceed with the purchase. Mattioli  Woods will effectively project manage this for our clients.

As cashflow is key for any company, the contribution from the company can be made within a week of the completion date for the purchase.

 Benefits of the planning

 corporation tax relief: obtained on the employer contributions

  • asset perseveration: with the pension being a separate entity and legal owner of the commercial property
  • tax exempt environment: approved pension schemes are exempt from capital gains tax and income tax, meaning future appreciation and rental income will all be tax-exempt


 The recent changes to pension contributions should be seen as a positive, as it has enabled many more individuals to increase the amount they can contribute towards their pension savings.

 That said, the legislation remains complex and a combined effort between client advisers is needed to achieve suitable client outcomes, ensuring that clients remain tax-efficient either through personal taxation or from a corporate perspective.




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