Five Pension Tips

You cannot normally access money in a pension until at least age 55 (57 from 2028).

Pension and tax rules can change, and benefits depend on your circumstances.

If you're not sure what's right for your situation, please seek advice.

Contribute to your Pension.

Make sure to take advantage of the opportunity to reduce your tax bill by contributing to a pension. Every payment you make into a pension is matched by a government top-up in the form of tax relief, which can significantly lower your overall tax bill.

As a UK resident under 75, you can generally contribute as much as you earn, up to a maximum of £40,000 per year until 5 April 2023 (which is set to increase to £60,000 on 6 April 2023) and receive basic-rate tax relief (20%). Non-taxpayers, including children, can contribute up to £3,600, with the government adding £720 in tax relief and you paying £2,880.

If you are a higher-rate taxpayer (40%), you can claim an additional 20% in tax relief through your tax return or local tax office, and if you are an additional rate taxpayer (45%), you can claim up to an extra 25%. However, you must pay enough tax at the relevant rate to claim back the full amount. Scottish taxpayers have different income tax rates and bands.

By making pension contributions now, you may be able to claim back more money come January when most tax bills are due. So don't miss out on this opportunity to reduce your tax bill and invest in your future.

Keep Saving

Many of us have visions of what our retirement years might entail, but we often lack a clear understanding of how much we need to save to achieve our desired lifestyle. Shockingly, just 16% of savers feel confident that they are saving enough for their retirement needs.

To alleviate this uncertainty, the Pensions and Lifetime Savings Association has introduced a tool that simplifies retirement savings by outlining different levels of national income and living standards. This tool can help individuals to envision the lifestyle they desire in retirement. There are three living standards available to consider.

	After determining the desired retirement income,  it's prudent to evaluate whether your current pension savings are on target. It's important to keep in mind that each person's financial situation is unique, and the figures presented below are simply a helpful guide
Source: Retirement Living Standards by the Pensions and Lifetime Savings Association and LoughboroughUniversity, January 2023

Choose your investments later

It's important to note that making a pension contribution and securing your allowances and tax relief within the tax year doesn't necessitate immediate investment decisions.

Some of our clients choose to make a pension contribution, secure up to 45% (or 47% for Scottish tax payers) tax relief before the deadline, and defer their investment decisions until a later date.

During this time, it maybe possible to hold cash within your pension while you consider your investment options.

However, it's essential to remember that while investments have the potential for growth, their value may also decrease, meaning you could receive less than your initial investment.

Get your contribution out of the way early.

Many individuals tend to delay their pension contributions until the end of the tax year. However, it may be beneficial to make contributions earlier, as doing so increases your chances of achieving your goals sooner. When your money is invested for a more extended period, it has a greater opportunity to grow. While finding money to contribute to your pension can be challenging, it is achievable by adopting these saving habits:

Allocate more funds when a regular expense has ended.

Suppose you've completed paying off a mortgage, debt, or finance. In that case, you could consider redirecting the regular cost towards your pension contributions. Even modest increases in contributions can have a significant impact over the long term.

Use pay raises or bonuses as an opportunity to save

Setting aside a percentage of your monthly income can be challenging, but a pay raise or bonus presents an opportunity to save. Some employers offer a bonus sacrifice option, which works similarly to salary sacrifice. You can opt to contribute some or all of your bonus to your pension, thereby avoiding National Insurance and income tax on that amount.

You can make a one-time lump sum contribution or spread your contributions throughout the year by investing monthly.

Do you have any unused Pensions Allowances?

If you're a high earner or have inherited large sums of money, the carry forward rule could be advantageous. This rule allows you to take advantage of any unused allowance from the previous three tax years. Let's say the annual allowance was £40,000 for the three previous tax years. This means you could invest up to an extra £120,000 in your pension. Effectively, you'd pay in up to £96,000, with the government adding £24,000 basic rate tax relief to the pension. If you'd paid additional-rate tax on all of it, you'd also be entitled to £30,000 further tax relief outside of the pension.

From 6 April 2023, the annual allowance for contributions to pensions will increase from £40,000 to £60,000. This means that you can save up to £20,000 more in your pension, including tax relief.

To use carry forward, you must have had a pension in each year you wish to carry forward from, regardless of whether or not you made a contribution. The State Pension does not count. Additionally, you must have earnings of at least the total amount you are contributing this tax year. Alternatively, your employer could contribute to your pension.

If you're not sure what's right for your situation, please seek advice.