Pension contributions are the most tax-efficient form of investment, and currently
qualify for tax relief at the saver’s highest marginal rate of tax. However, the cost to the Government of this relief is very high, and it is rumoured that the Chancellor may announce a less generous regime in his 16 March Budget. One possibility would be to tax pensions in the same way as ISAs, which would incidentally end the 25% tax-free cash entitlement.
The maximum amount which can be invested in pensions a single tax year is £40,000, but as a result of the second Budget in 2015, if £40,000 was invested before 8 July 2015, a further £40,000 can be invested after that date, permitting a total contribution of £80,000 in 2015/16. It may also be possible to carry forward unused annual allowances from up to three previous tax years.
However, for people earning over £150,000 a year, the annual allowance will reduce as from April 2016 by £1 for every £2 by which income exceeds £150,000, until it declines to just £10,000 p.a. when income reaches £210,000.