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Time to top up your pension

Colin Dyer photo

There’s nothing like the springtime to have a good sort out. When the days start getting a bit longer (and the daylight starts to show up the dust), it’s a great time to have a spring clean and make sure everything’s in order for the warmer months ahead.

But while you’re out planting your bulbs and cleaning the top of the cupboards (who does that more than once a year, anyway?), don’t forget that there’s a deadline that can easily be forgotten: the end of the tax year.

And if you’re still adding to a pension pot, it’s an important deadline. Because pensions are the most tax efficient way to save for retirement. And by ignoring the 5th April, you might miss an excellent opportunity to top up.

Your 1825 financial planner will help you work out the best ways to add to your retirement savings at this crucial time of year – leaving you more time to get on with that gardening. But in the meantime, here are some of the reasons why it’s a good idea.

 

What a relief

Pension saving incentives come under scrutiny at every budget – so relief at the highest rates may not be around forever. If you’re a higher rate taxpayer, you might want to speak to your 1825 financial planner about contributing an amount to maximise tax relief while you have the opportunity.

 

‘Carry forward’ to retain your £40k allowance

If you have an income of over £150,000 you could face a cut in the amount of tax-efficient pension saving you can enjoy this tax year – for some people your Annual Allowance could drop to as low as £10,000.

However, you may be able reinstate your full £40,000 allowance by making use of ‘carry forward’. The reduction in the annual allowance doesn’t apply if your income is less than £110,000 after you’ve taken off your pension contributions.

Using-up unused allowance from the previous three tax years can help keep your ‘income’ down and enable you to keep your full allowance for 2018/19. These extra contributions would also still benefit from your full tax relief entitlement.

 

This time it’s personal

Everyone gets a Personal Allowance of £11,500 which is the amount of income you can have before you start to pay tax on it. However, high earners lose out here as the Personal Allowance goes down by £1 for every £2 of income above the £100,000, meaning if you earn £123,000 or more you lose out on your Personal Allowance completely.

Pensions can help though. Your contributions reduce the income used to assess your personal allowance entitlement – so they’re a great way to reinstate your allowance and become more tax efficient.

 

Keep hold of child benefit

If you have younger children, contributing to your pension can also ensure that the value of child benefit is preserved for the family, rather than being lost to the child benefit tax charge. Your financial planner can help you work out what level of contribution would be needed and if it’s worthwhile for your situation.

 

It’s a bonus

Many companies pay annual bonuses in March and April. Giving up some, or all, of your bonus in exchange for a pension contribution from your employer can have several positive effects, including a boost in funding from employer and employee National Insurance savings.

It could certainly be a sacrifice worth making and is worth considering.

Reduce, re-use, recycle?

As we already know, allowances are an invaluable way of reducing the amount of tax you pay in the first instance, yet they can also provide a great way of harvesting profits from investments tax-free.

Taking profits from an investment portfolio which are within your Capital Gains Tax Allowance, currently set at £11,300, can be a great way to supplement income. Even if you don’t need the extra income at this exact point in time, re-investing the proceeds means that there will be less tax to pay when you do reach a point when you’d like to access these funds.

An even better way to recycle this capital might be into a more efficient tax wrapper like an ISA or your pension. Whilst both will protect your savings from tax, a pension allows you to claim further tax relief and funds will be protected from Inheritance Tax.

Make it part of your spring clean

If you’re having a sort out, now’s the time to arrange a chat with your 1825 Financial Planner to get some advice on topping up your pension contributions before the end of the tax year. We’ll help you make the most of all these reasons to top up before 5th April – so you can get on with all the other things on your ‘To Do’ list.

April will be here before we know it, so speak to your financial planner soon. Or if you’re thinking about financial planning, but haven’t yet found an adviser, why not get in touch by booking an initial free consultation? Our 1825 financial planners are always happy to help with any questions or concerns, or alternatively you can post a general question below.

 

Tax treatment is based on your personal circumstance and laws and tax rules may change in the future. The information here is based on our understanding in February 2018.

Pensions are investments and investments can go down as well as up meaning you may get back less than you put in.

The information in this blog or any response to comments should not be regarded as financial advice.

 

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