17th February 2017 at 3:22pm
With pensions still the most tax-efficient way to save for your retirement, here are 7 reasons why now could be the right time to make the most of your pension funding before 6 April.
It’s all about maximising your pension funding tax-efficiently.
Get tax relief at the highest rates
If you are a higher- or additional-rate taxpayer it makes sense to make the most of the 40-45% tax relief you can get on your pension contributions under current tax rules.
Just make sure you claim the tax back from HMRC if you need to.
Boost your pension funds before you take them
From April, new rules mean the Money Purchase Annual Allowance drops from £10,000 to £4,000.
This only applies if you have started to take any of your pension money and means the amount you can pay into your pension in the future is reduced.
The good news is that if you haven’t taken your pension savings, are already in capped drawdown, or just taking your tax-free cash, you still have the full £40,000 annual allowance.
Sacrifice your bonus for an employer pension contribution
If you get a bonus from your employer, it’s subject to tax and National Insurance.
Pay it into your pension instead and you save on these, and more of your money can go into your pension.
One thing to watch out for is whether this would take you over your annual allowance limit, resulting in a tax charge.
Use carry-forward to keep your full annual allowance
The annual allowance was cut for higher earners this year. If your income is more than £150,000 in a tax year, the £40,000 annual allowance begins to reduce, tapering to £10,000 when your income is £210,000.
If this affects you, you may be able to reinstate your full £40,000 allowance under carry-forward rules which allow you to use any annual allowances still available from the last three years.
This is because if your income less the personal contributions you make to your pension is under £110,000, the tapering rules don’t apply. It means you might not be affected by the annual allowance tax charge.
Use your £50k carry-forward now before it goes
You can carry forward £40,000 from past tax years on top of your annual allowance if you haven’t already done so, but the higher £50,000 allowance from the 2013-14 tax year is still available until April.
If this applies to you, make full use of it now while you can.
Reclaim your child benefit
Worth over £2,500 a year to a family with three children, child benefit is reduced by a tax charge when one parent’s income reaches £50,000 and cancels it out at £60,000.
But there is a way to get it reinstated.
A pension contribution reduces what’s counted as income. Moving pension saving from the lower earning parent to the higher-earning partner, or paying more into your pension, could reduce the tax charge or even reinstate your full child benefit.
You save more into your pension and benefit from tax relief on it too.
Reinstate your £11k personal allowance
When your income is over £100,000, your £11,000 tax-free personal allowance is reduced by £1 for every £2 of income and tapers to zero when it reaches £122,000.
If your income is in this bracket, making pension contributions to reduce it to £100,000 could get your personal allowance back.
The information in this blog or any response to comments should not be taken as financial advice. Laws and tax rules may change in the future. A pension is an investment and you may get less back than you paid into it.
The information here is based on our understanding in February 2017.
Find more information on this in our guide to pension tax relief.