With the new tax year underway, now is a good time to review your financial plans and make sure your pension is on track for a comfortable retirement.
Here are five savvy strategies to help boost your pension in the new tax year.
This article isn’t personal advice. Investments and any income from them can fall as well as rise in value, so you could get back less than you invest. If you’re not sure what’s right for you, please ask for advice. Remember, you can’t usually take money out of a pension until at least age 55 (rising to 57 from 2028).
Don’t forget to claim tax relief
Every time you pay into your pension, you usually get tax relief. Claiming what you’re entitled to sounds like it should be a given, but pension savers miss out on millions every year.
You can claim tax relief on your pension contributions at your marginal rate of tax and over time this can make a significant difference to your total pension value.
In most cases, basic-rate tax relief will usually be added to your contribution automatically. But, if you’re a higher or additional-rate taxpayer you might need to claim the extra 20% or 25% tax relief through self-assessment.
You won’t need to put in a claim if your pension is set up as a salary sacrifice arrangement. However, if your pension is set up under what is known as relief at source, you’ll normally need to claim the extra tax relief through your tax return.
Pension and tax rules can change, and benefits depend on your circumstances. Scottish tax rates and bands are different.
Take advantage of the higher annual allowance and carry forward allowance
You can generally save up to your annual earnings or £60,000 (whichever is the lower) into your pension every tax year and benefit from tax relief. This £60,000 figure is known as the annual allowance.
For several years the annual allowance was stuck at £40,000, meaning you could pay in up to £32,000 and the government would add up to £8,000 in tax relief on top. Higher and additional-rate taxpayers could claim back up to a further £8,000 or £10,000.
But since last tax year, you can now pay in up to £48,000 and the government will add up to £12,000 in tax relief on top. Higher and additional-rate taxpayers can claim back up to a further £12,000 or £15,000.
If you have any unused allowance from any of the previous three tax years, you may also be able to use this to benefit from more tax relief (if you aren’t contributing more than your annual earnings). This rule is called carry forward, and means that in this tax year you could pay in up to £200,000, including basic-rate tax relief.
Your annual allowance could be lower if you’re a high earner affected by the tapered annual allowance, or if you’ve flexibly accessed your pension and triggered the money purchase annual allowance.
Regularly check and review your contributions
After setting up payments into your pension, it’s tempting to leave them alone and never look at them again. However, revisiting how much you pay in at key periods can really boost your retirement resilience.
For example, you could consider increasing contributions every time you get a pay increase, or change jobs.
Increasing your contributions in line with inflation could also help future proof your pension against the rising costs of living which can erode spending power over time.
Make the most of your employer contributions
Many employers stick to auto-enrolment minimums when it comes to how much they’ll pay into your pension, but there are others who are willing to pay in more.
Some will potentially hike them even further if you increase your contribution – a process known as employer matching.
If your employer offers this, and you’re able to take advantage, you could really boost your pension prospects.
Track down any lost pensions
Moving jobs a lot can make it easy to lose track of old pensions. But, this could leave you worse off in retirement. Research from the Pensions Policy Institute estimates there’s around £26bn of lost pension money.
Start by making a list of your old employers and making sure you have pension paperwork for each one. If you find one’s missing, then try the government’s Pension Tracing Service and they’ll help you track down the right contact details.
Once you’ve located your lost pensions, then it can make sense to transfer them into one place.
Having an overall view of what you have can help you make better decisions, as well as cutting down on administration and making it easier to plan your pension saving.
Before you transfer, check you won’t trigger any expensive fees or lose valuable benefits or guarantees. It’s also rarely a good idea to transfer a final salary pension scheme.
