End of Year Pension Top-up
As we trundle towards the end of the UK tax year, you shouldn’t just be turning your thoughts to tax returns and just how much HMRC are going to demand from you!
There are personal benefits to be had if you’re in a position to take advantage of them, and one of the biggies is pension contributions.
Below we’ve listed a number of exceptionally good reasons to consider contributing to your pension before the end of the tax year.
Tax Relief on Contributions: The principle of tax relief on pension contributions remains the same; you receive tax relief at your highest rate of income tax.
This means basic rate taxpayers get a 20% boost to their contributions from tax relief, while higher and additional rate taxpayers can claim even more through their tax returns, making pension contributions an efficient way to save for retirement.
Annual Allowance: The annual allowance for the tax year 2023/2024 is £60,000 for most people, or 100% of your earnings if you earn less than this.
Maximising your contributions before the end of March allows you to fully utilise this year's allowance. Remember, you can also carry forward any unused allowances from the previous three tax years, but you must use the current year's allowance first.
Tax Band Optimisation: Contributing to your pension can reduce your taxable income. Making a pension contribution could reduce your taxable income and possibly bring you into a lower tax bracket, saving you money on taxes.
Lifetime Allowance: For the 2023/2024 tax year, the Lifetime Allowance for pension savings remains at £1,073,100. Contributions should be planned with this limit in mind to avoid additional tax charges.
Benefit from Compound Interest: Contributing earlier in the tax year maximises the time your investment has to grow. By topping up your pension before the end of March, you can benefit from an additional year of growth potential compared to waiting until the next tax year.
While we appreciate that not everyone can afford to pour thousands into their pension pot at the drop of a hat, pension planning remains one of the better investments you can make in your future.
It’s all the more important with stories circulating in the press that Governments may be considering further increases to the pensionable age, so having a good private provision will give you greater choice in the future.
If you need help or advice to work out how to balance the potential benefits of pension contributions, just get in touch and we can sit down and work out what’s best for you and your circumstances.