Pension annual allowances allow holders to contribute to their pots before tax is deducted. For the current tax year, the annual allowance is £40,000, which includes contributions from the holder and their employer.
However, this allowance resets every tax year and any allowances not utilised by April 5 are lost.
On this, James Bonarius and Scott Palmer, Wealth Managers from Walker Crips, urged savers to take advantage of what’s on offer: “Another tax year end planning tip, would be to maximise pension contributions where possible.
“Individuals can contribute up to 100 percent of their earnings into a pension up to a maximum of £40,000, and claim 20 percent tax relief.
“For those lucky enough to pay tax at the higher or additional tax rate, further relief is given through an annual self-assessment tax return.
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“An estimated £830 million in pension tax relief went unclaimed by high earners in 2017/18 alone which highlights the problem that people are unaware and not claiming what they are due.
“It may also be possible to ‘carry forward’ previously unused annual allowances from the three previous tax years.
“For those individuals who can benefit from ‘carry forward’, significant tax savings can be made through pension planning even if you miss the tax year end deadline and you should always check with a Financial Adviser that you have available unused Annual Allowance to do so. “Finally, for those without earnings, it is still possible to contribute £3,600 gross into your pension each year.
Kevin Sefton, the co-founder of untied, also warned that a lowering of reductions may emerge in the future and as such, savers should act now: “Pensions are a tax-efficient way of saving for your future retirement because you get a top up equal to basic rate tax relief of 20 percent on anything you pay into a pension.
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“If you pay £80 into your pension, the Government will add an extra £20, making a total amount of £100 that goes into your pension pot.
“If you pay tax at higher or additional rates, you’ll also be entitled to further tax relief on your contributions.
“You can save into more than one pension scheme at a time. There are many different types of pension, including workplace pension schemes, stakeholder pensions, personal pensions and Self-Invested Personal Pensions (SIPPs) – which allow you to make your own investment decisions on how your pension pot is invested.
“You get tax relief on up to 100 percent of your annual earnings, up to a limit of £40,000 or lower if your income is over £240,000.
“In the past, there have been rumours about the Government looking at the possibility of reducing tax reliefs available for pension contributions.
“However, nothing changed in this year’s Budget.
“This might change in the future so if you want to ensure you lock in the benefits of the tax relief available in this year you might want to explore options for making additional contributions before April 5.”
Additionally, with the new tax year mere hours away, Michelle Gribbin, the Chief Investment Officer at Profile Pensions, laid out what savers should be prioritising going forward: “”As we start a new tax year and start the journey out of lockdown what lessons have we learnt? How can we put ourselves in a robust position to face the future? We have learnt that everything can change overnight – job security and normality can change in the blink of an eye. Now it’s the time to think about our future – to plan carefully and save wisely – both in the short, medium and long term. So putting money away for the short term – build up an emergency term for short term expenses such as job loss or furlough.
“For the medium term – mortgage, savings maybe for that special holiday when we are out of lockdown.
“And we should look to the longer term – our retirement and our health. There has never been a better time for a financial health check – is your pension in the right place, are you contributing enough, do you have enough savings not to impact your plans for the future/retirement? If you are one of the lucky ones not financially impacted by Covid, but impacted in terms of lack of ability to spend your money on the things you have usually done, can some of those monies be used to boost savings and pensions.
“A new tax year means it’s a good time to make the use of the new tax allowances for this year for ISAs and pensions. Being proactive and acting now gives you the ability to change your future. Being reactive could mean you will be forced to do things that you do not want to do such as having to come out of retirement or change your living standards. Are you ensuring you will have a comfortable retirement or are you kicking the can down the road and leaving your future up to chance and choosing not to take control of your destiny?
“We have seen markets fall overnight which demonstrates why being in the right investment is so crucial. If you were to lose your job, then your invested money is still working and you could be growing your wealth even without making contributions. Your pension is likely one of the largest parts of your wealth, just because you can’t access it now should not mean you neglect it. These simple steps now will help you to safeguard your financial future.”