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Too much or too little income

Technical Article

Publication date:

18 September 2018

Last updated:

29 July 2019


Claire Trott

Maximising pension contributions is something of a balancing act and for those with fluctuating income it can be a virtually impossible to utilise their whole allowances without wasting tax relief or getting an annual allowance charge.

We talk to many people who get their bonuses paid at the end of the tax year and although extra income is usually welcome the issues that this can cause means that planning is often left to the last minute.

Too much income

Having a larger bonus than anticipated could mean that a client is suddenly pushed into the realms of the tapered annual allowance as well as a reduced personal allowance. If there is time before the end of the tax year then increasing pension contributions using carry forward could save additional tax charges for the client as well as reinstate their personal allowance.

Careful calculations need to be performed to check what the situation would be both before and after the contributions is made so it is key have all the historic data to hand before the situation arises. This is why it is always good to have a full record of contributions paid and details of any available carry forward. This information will be needed to see what scope there is to mitigate any problems that arise because of a larger than expected income.

Too little income

For those that have been paying in regular pension contributions but where their income is mainly derived from dividends, it could be the case that the contributions could exceed the client’s UK relevant earnings in the tax year. This is because dividends are not UK relevant earnings and so don’t qualify for tax relief on pension contributions. So, if the balance of dividends and earnings changes there may well be contributions that are not entitled to tax relief.

These excess contributions are something that can be refunded, although you will have to wait until the end of the tax year in order to do so. The tax relief will be returned to HMRC and any higher rate relief that had been claimed through PAYE will need to be paid back. The client will then receive the net amount over and above their UK relevant earning back as a “refund of excess lump sum”.

This doesn’t have to be the case but the scheme will still need to be notified and decide if they are willing to retain the contribution, although they will still need to return any tax relief that has been claimed.


The art to getting this right is to get as much information from the client as possible before it is too late. The deadline for schemes to provide pension savings statement for last year is looming so for those that aren’t provided automatically it is best to request them sooner rather than later to be sure they arrive in time. If they are not mandatory pension savings statements they can take up to 3 months to arrive, which may well be too late it left much longer.

This document is believed to be accurate but is not intended as a basis of knowledge upon which advice can be given. Neither the author (personal or corporate), the CII group, local institute or Society, or any of the officers or employees of those organisations accept any responsibility for any loss occasioned to any person acting or refraining from action as a result of the data or opinions included in this material. Opinions expressed are those of the author or authors and not necessarily those of the CII group, local institutes, or Societies.