Thousands of people may have unexpected tax bills, because they have contributed too much to there pension schemes.
Most people are entitled to contribute up to £40,000 a year into a private pension tax-free.
This cap applies across all of your pension schemes, and includes contributions made by employers, or on your behalf by someone else.
However, once you go above this cap you will face a tax bill at your marginal rate of tax, typically around 40% – 45%.
The annual allowance is tapered, which means that for every £2 earned above £150,000 the allowance comes down by £1.
It eventually falls to £10,000 for people earning £210,000 or more a year.
If you have a defined benefit scheme then the annual increase in the value counts towards your total contributions.
As such, it is important to ask for an annual statement so you can see how much it has increased.
If you have a workplace pension scheme it will inform you when it has gone over the cap.
However, the manager of the scheme can only tell when that scheme has gone over as they don’t have access to all your pensions if you have others.
All these mean points make it vital that you check your pension contributions before filling out your Tax Return.
