Expert reveals tips on how to save for retirement
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The last day of the tax year, April 5, is less than a month away, but there’s still plenty that can be done to boost pension pots before then. Jenny Holt, Managing Director of Customer Savings & Investments at Standard Life, shared some useful tips to help savers make the most of their pension before the deadline.
Top up contributions with pension tax relief
Britons could benefit from added tax relief on their pension contributions, helping to boost their pot.
Ms Holt explained: “Tax relief makes your pension plan one of the most tax-efficient ways to save for your retirement. Your contributions get topped up by the Government, effectively making it cheaper to save more into your pension plan.
“Not all pension schemes provide tax relief in the same way, but most UK taxpayers get tax relief on their pension payments based on the rate of income tax they pay.
“This means most UK taxpayers will get a 20 percent top-up from the Government on their pension contributions, so it’ll only cost you £80 to pay £100 into your pension.
“The benefits are usually even more for higher or additional-rate taxpayers, although you’ll need to claim anything above 20 percent back from the Government depending on how your contributions are being paid.”
She added that some workplace pension schemes offer tax benefits in a different way, such as through salary sacrifice or salary exchange schemes, and urged people to check with their employer how this works for them if they are unsure.
Use the pension annual allowance
The pension annual allowance is the total amount that an individual, their employer and any third party can pay into their pension in a tax year.
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The limit is currently £40,000 or 100 percent of someone’s earnings in a tax year, whichever is lower, although it could be less for higher earners, non-earners or those who have already started taking money from their pension savings.
Ms Holt said: “Once the new tax year starts, your annual allowance will renew. So it makes sense to consider paying more into your pension plan before then to make the most of this year’s allowance.
“Even if you’ve already used all of your annual allowance for the 2021/22 tax year then you might still have the option to save more.
“If the £40,000 annual allowance limit applies to you and your circumstances allow, you can usually carry forward any unused allowances from the last three tax years, so it’s worth double checking.”
Take advantage of workplace pension plans
By paying into a workplace pension scheme, Britons can also get additional top ups from their employer which could add value to their retirement fund.
Ms Holt said: “Workplace pension plans are a great way to save more for your future because your employer has to contribute too.
“At least eight percent of your qualifying earnings will be paid in, and a minimum of three percent of that will come from your employer.
“Some employers will even match a percentage of your pension contributions. So check to see if upping your pension contributions could mean your employer will pay in more too.”
Get Child Benefit back by paying more into a pension plan
Child Benefit is reduced by the High Income Child Benefit Charge when one parent’s income reaches £50,000. At £60,000, the tax charge cancels out the benefit entirely.
However, there may be a way people could get some or all of it back if their earnings are in this range.
Ms Holt said Child Benefit can be worth around £2,500 a year to a three-child family, a potentially significant amount.
She explained: “Contributing to your pension plan reduces what counts as your income. And could allow you to keep your Child Benefit and boost your pension savings at the same time.
“Use the Government’s Child Benefit tax calculator to work out if you’re affected by the tax and how. You can choose not to take Child Benefit payments if your earnings are over £60,000, but you should still consider filling in the Child Benefit claim form.
“This helps you get National Insurance credits, which go towards your state pension later in life.”
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