Limits on company pensions
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As pension schemes
are granted taxation privileges they must also operate within
limits set down by the Inland Revenue. This is to avoid pension
schemes abusing the advantages they are given and therefore causing
the revenue to lose too much of its tax revenues.
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Limits on contributions
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In defined benefit schemes
members are restricted to paying a maximum of 15% of gross earnings
into pension schemes per tax year (i.e. 6 April to 5 April next
year). This includes any amounts paid into AVCs. So if you pay 3% of gross earnings into your company
defined benefit scheme you can pay a further 12% into AVC's if you
wish. Employers can pay as much as they like (or can afford!).
In defined contribution schemes the limits depend upon the way in
which the scheme is established (under which tax "chapter") with the
Inland Revenue. Many schemes will have the same limits as for
defined benefit schemes (i.e. the 15% of gross earnings described
above). However some schemes will be setup under the same limits as
Personal Pensions and these limits apply to contributions from
employees and employers combined. To see what these limits are read
the Individual Pension guide.
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Limits of pensions
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In defined benefit schemes (and defined contribution schemes with
the 15% contribution limits) the maximum pension from a scheme is
2/3rds of final salary (this is a relatively high level of pension,
which few will receive).
In defined contribution schemes established like Personal
Pensions no maximums exist (remember in these schemes the total
contributions from employees and employers are limited).
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If you have a pensions
related question then please let us
know.
If it's something other people
would find useful then we will post an answer in our Frequently Asked Question
(FAQ) area.
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Use our online calculator
to get an estimate of your basic state pension.
Its free and
simple to use you can even include it on your own website!
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Get the FREE Pension calculators from Essential Pensions.
No money, no
registration, just include one line of HTML in your web page.
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Read the guide to
investment in the pensions guide. It explains what you need to
think about before investing for your retirement.
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Tell a friend about
Essential Pensions. Send an automatic message to your friends
email account about the site.
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