How your pension could cost you £13,500

Those who haven't reviewed their pension contributions since a string of rule changes came into force earlier this year could find themselves facing a hefty tax bill, a London accountancy firm is warning today.

Blick Rothenberg has cautioned that people who haven't altered the amount they are topping up their pension pot with since the annual allowance was lowered for higher earners in April could find themselves facing a tax bill of as much as £13,500.

Since April, those with an income over £150,000 have seen their annual allowance, which refers to the amount people can put into their pension each year tax free, lowered from £40,000 on a sliding scale to as little as £10,000.

The annual allowance is reduced by £1 for every £2 over the £150,000 threshold somebody earns, so that those with an income of £210,000 or greater will have had their allowance lowered £10,000.

"We recently held a briefing session for employers and the general feedback is that the reduction in the annual pension allowance has been under published," said Suzanne Briggs, director at Blick Rothenberg. "Additionally, many of the people we are speaking to are unaware of the changes.

"Both employees and employers should urgently review pension positions to protect against any nasty tax surprises after the end of the tax year. There are options available to help prevent the unexpected liabilities but action needs to be taken now, and not at the end of the tax year."

Blick Rothenberg is warning that those workers who stand to receive sizeable bonuses or have a second source of income, such as buy to let properties, could find themselves in for a nasty shock when their annual allowance is suddenly lowered to a much smaller level than they had originally calculated based on their salary alone.

Briggs continued: "Some individuals may have already breached the £10,000 allowance, just two months into the tax year, but they won’t necessarily know until the end of the tax year, whether their annual allowances will be £40,000 or £10,000, or any amount in-between. As a result, they will then face an unexpected tax bill at 31 January 2018."