Annual Contribution Allowance – Defined Benefit Pensions

February 23rd, 2015

With the drop in contribution allowance reducing from £40k to £10k this April, those of you already receiving your pension from a Defined Benefit Scheme need not worry about maximising your contributions as the allowance only applies to defined contribution schemes. Katie Morley at the Telegraph cleared up the issue after a worried reader posed the question.

“The reduced annual allowance of £10,000 only applies to defined contribution (money purchase) schemes – not defined benefit schemes – and only where the saver has accessed their pension “flexibly” under the new freedoms coming into effect from April 6 this year.

Under the Taxation of Pensions Bill, the following are counted as “flexible access”: Taking a cash amount over the tax-free lump sum from a flexi-access drawdown account; taking a pension lump sum that’s uncrystallised (which means you haven’t spent any of it); purchasing a flexible annuity, or taking a scheme pension from a defined contribution scheme with fewer than 12 pensioner members or taking a stand-alone lump sum where the individual has primary but not enhanced protection.

So, David would only be impacted by the reduced allowance if he were to “flexibly” access his Sipp after April 6, and only then if he wished to continue making contributions thereafter.”

Click here to see the full article.