Older savers who carry on putting money in a pension after withdrawing cash from it face new curbs on the sums they can invest.

Pension freedom rules ushered in during April 2015 mean that those aged 55 or over can access their private (not state) pension pots early.

This new flexibility means you can withdraw up to 25% of your pot tax-free each year, and – if desired – leave the rest invested in stock markets, while new cash can be added as well.

Under existing pension freedom rules, you can put in up to £10,000 a year into your pension once you've accessed it this way.

What is changing?

From April 2017, anyone who starts withdrawing from a private pension can only reinvest a maximum of £4,000 a year into their pension pot.

While the Government is still consulting on the detail of how this will work, it has said that this restriction is designed to prevent 'inappropriate double tax relief'.

This is because, having already benefited from tax relief on pension savings, you're deemed to be benefiting twice.

What can I do if I'm affected?

If you had plans to invest more than £4,000 into a private pension that you'd already started drawing from in April 2017, you may wish to consider doing so before then.

For a full explanation of the benefits and disadvantages of taking your pension early, as well as how to do it, see our Free Guide to Taking Your Pension.

The £40,000 contribution limit per year before drawing from your pension and the £1 million lifetime allowance of total contributions allowed to a private pension are as yet unchanged.

Martin Lewis
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