Six pension tips to consider before the new tax year

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The tax year end is fast approaching on April 5, and it leaves people with limited time to make the most of allowances. One aspect of finances a person may wish to consider at this time is a pension, as key tips could make a real difference.

Tax Relief

Many Britons could benefit from tax relief by saving into their pension, making their savings more efficient.

With tax relief, savers get their payments topped up by the Government, making it cheaper to save more into a pension plan.

While Britons should be aware not all pension schemes offer tax relief in the same way, there are broad rules to consider.

Mr Butler explained: “Most UK taxpayers get tax relief on their own 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 payments, 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 – but you’ll need to claim anything above 20 percent back from the Government depending on how your payments are being made.”

Annual allowance

The pension annual allowance is how much a person, their employer and any third party can pay into all their pension plans in a tax year before a charge may apply.

The limit is currently £40,000 or 100 percent of earnings in a tax year, whichever is lower, but will rise to £60,000 at the start of the next tax year on April 6, 2023.

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It could, however, be less if a person is a higher or non-earner, or if they have already started taking money from their pension savings.

Mr Butler said: “If you can afford to do so, it makes sense to consider paying more into your pension plan before then to make the most of this year’s allowance.

“If you’ve already used all of your annual allowance for the 2022/23 tax year, don’t worry – you might still have options, as you can usually carry forward any unused allowances from the last three tax years.”

Bonus sacrifice

Those who get a work bonus might have the option to pay some or all of this into their pension.

In so doing, they could save on National Insurance deductions and tax, meaning people get to keep more of their bonus in the long run.

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Workplace pension

Mr Butler stated: “Workplace pension plans are a great way to save more for your future because your employer normally has to pay in 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 the percentage you’re paying into your plan up to a certain amount. So, it’s worth checking to see if upping your own payments could mean your employer will pay in more too.”

Tax-free Personal Allowance

Most people will get a Personal Allowance of £12,570 for the current tax year.

However, once one’s taxable income reaches £100,000, they will see their Personal Allowance cut by £1 for every £2 of their income – until it is lost when income reaches over £125,000.

A pension could help with potential losses, as Mr Butler added: “You may be able to recover any loss to your personal allowance by reducing your income through paying into your pension plan. That way, your pension contributions will be benefiting from tax relief at a marginal rate of 60 percent, which is quite a significant pension perk.”

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Child Benefit

Millions of people will be eligible for Child Benefit, however, may not be aware of the rules and how it could impact their pension.

Mr Butler explained: “Worth a little over £2,600 a year to a three-child family, 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. But there is a way you could get some or all of it back if your earnings are in this range.

“Paying into your pension reduces what counts as your income, and it could allow you to keep your Child Benefit and boost your pension savings at the same time.”

Some may choose not to take Child Benefit if their earnings are over £60,000, but experts recommend filling in the claim form.

This is because doing so can help Britons get valuable National Insurance credits which go towards a state pension later in life. 

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