Frequent chopping and changing of tax rules means that important opportunities to make the most of your current pension allowances can often go un-noticed. Are you making tax relief work for you? Do you know what your current annual allowance is and are you making the most of it? Can you carry forward any unused allowance from previous years? Our range of free factsheets could help.
Tax relief is a valuable pension tax benefit that can help you save for retirement. Simply pay into your personal pension and the government will top it up for you with basic rate tax relief of 20% (the overall amount of tax relief you receive depends on how much you earn, what rate of Income Tax you pay and the type of pension you belong to).
No tax relief is provided on any contributions made by an employer.
It’s also important to remember that you will only get tax relief on contributions up to the amount you have actually earned in the relevant tax year.
The annual allowance is a limit on the amount that can be contributed to your pension each year while still receiving tax relief. For the current tax year it is £40,000.
If you have income above £110,000 your annual allowance may be reduced. For more information take a look at the 'Tapered Annual Allowance' tab.
It may be possible to pay more into your pension and still benefit from tax relief by carrying forward unused allowances from previous years. You can find out more in the ‘Carry Forward’ tab.
Important; If you’ve already taken flexible benefits from your pension a lower annual allowance limit may apply. At the 2017 Budget, the Government confirmed an intention to lower the limit from £10,000 to £4,000 from 6 April 2017. However, due to the snap election, the legislation needed to implement this is currently on hold.
Whilst this means the limit currently remains at £10,000 this change could still go ahead after the election. It is worth sticking to the £4,000 limit until the outcome of the election is known and further announcements on this are made.
Download our MPAA (money purchase annual allowance) factsheet here for more information.
Since the 6th April 2016 the amount you can pay into your pension may be tapered according to your income. Anyone with 'adjusted income' over £150,000 could be affected. Their allowance will reduce by £1 for every £2 that exceeds £150,000. Those with 'adjusted income' of more than £210,000 could see their allowance reduced to a minimum of £10,000.
Anyone with 'adjusted income' of less than £150,000 a year should not be affected by the tapered annual allowance. However, it’s important to remember that income in this context includes not just your earnings, but any returns from investments you hold outside of tax wrappers and, critically, the value of any pension contributions made by your employer.
Did you know that you might be able to contribute up to £160,000 to your pension this tax year (until 5th April 2018) whilst benefiting from tax relief? You can do this by carrying forward unused allowances from the previous 3 tax years.
Remember you must have been a member of a UK registered pension scheme in the relevant tax year from which you wish to carry forward from and have earnings at least equivalent to the contribution you wish to make in order to receive full tax relief.
If you think the combined value of your pensions could exceed the lifetime allowance by the time you retire, then you might find our ‘Will your pension be hit by the lifetime allowance?’ guide useful.
The value of investments can go down as well as up, and you may get back less than you invest. The eligibility to invest in a pension depends on individual circumstances and all tax rules may change in the future. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser. You will not be able to withdraw money from a pension until you are 55.