How you can make the best use of new supercharged pension allowances

Anew tax year normally means that pension annual allowances are refreshed. But this year, as a result of the March Budget, they are not only refreshed, but substantially increased – in some cases to more than double. This is good news for those who can afford to take advantage of tax planning opportunities.

The increases in the pension annual allowances are part of the Government’s initiative to encourage the over-50s to stay in work or, for those who left, to return to work.

Some NHS doctors and consultants were facing large tax bills linked to their pension that pushed them, and some in other professions, into retiring early. This is a particular issue for higher earners in “defined benefit” schemes, such as the NHS scheme, where pension income is accrued over your working life.

The calculation of the monetary value of a year’s extra pension could easily take them above the old £40,000 standard annual allowance limit. Increasing the annual allowance lessens the risk of future large tax bills.

Because of other changes – such as cuts in the tax-free allowance for capital gains and dividends, and the reduction in the top-rate earnings threshold from £150,000 to £125,140 – pensions have become even more attractive.

FROZEN INCOME TAX THRESHOLDS

The income tax bands are frozen until April 2028 (apart from the reduction in the additional rate earnings threshold

SAVE UP TO £180,000

IN A SINGLE YEAR

The annual allowance has increased by 50pc from £40,000 to £60,000 this tax year – the highest it’s been since 2010-11 when it was £255,000.

It is the maximum amount of contributions that can be paid into a pension in one tax year without attracting a tax charge. This includes employee and employer contributions as well as contributions paid by a third party.

Your own (and any third party) contributions are limited to tax relief on the greater of 100pc of your taxable earnings or £3,600 gross in a tax year. Your employer can top up your contributions up to the annual allowance. But if total pension contributions in a tax year exceed £60,000, individuals will face a tax charge, unless they are able to use the “carry forward” rules.

The good news is that even though the annual allowance has risen, it will still be possible to carry forward unused pension allowances available from the previous three tax years, providing you have not flexibly accessed your pension ( see below). To use these rules, you must have been a member of a registered pension scheme for each of the tax years you wish to carry forward from.

This means that in the current tax year it would be possible to pay in £60,000 and carry forward a maximum of three lots of £40,000, totalling

Kate Smith works for Aegon and has more than 30 years’ experience in the pensions industry. Email questions to

pensionsdoctor @telegraph.co.uk £180,00, including any employer pension contributions. This assumes that you hadn’t made any pension contributions for the past three years, perhaps as you were concerned about exceeding the lifetime allowance ( due to be scrapped April 2024).

TAPERED ANNUAL ALLOWANCE There have also been welcome changes to the tapered annual allowance which means the highest earners can save more in a pension without attracting a tax charge. Although this continues to be excessively complicated.

The tapered allowance affects those