Is is true that the annual pension allowance (£40k) is void on the last year you work before you retire, so you can contribute more than £40k without paying tax?
25 January 2022
Question by Steve
Is it correct that the annual pension allowance (£40k) is void on your last year of work before you retire, so you can contribute in excess of £40k without paying tax?
Answered by Boring Money
Thanks for your question.
No, this is not the case. Personal pension contributions are subject to the lower of your net relevant earnings or £40,000 even in your last year of work. If in any year you earn more than £40,000 and wish to contribute, you may be able to contribute via 'carry forward' to receive tax relief of more than the £40,000 limit (subject to holding the UK registered pension for 3 years and available allowance not used in previous years).
Even if you have no net relevant earnings, you can still contribute £3,600 gross (£2,880 net) into a pension to receive tax relief.
Any contributions above net relevant earnings could still be tax efficient for inheritance tax planning if applicable.
Hope this helps.