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Try it nowMake the most of pension saving before the 2022/23 tax year is up
The 2022/23 financial year is soon to come to an end meaning two things for pension savers. Now is not only a perfect time to make sure you are making the most out of your pensions tax benefits, it’s also a great chance to review your saving plan in general.
With the cost of living squeeze we are facing, it’s crucial to take a more holistic approach to your finances, including your pension. We are having to spend more money for food, bills, transport, care and many other aspects of daily life, and having a clear view of all of your outgoings and what you can cut back on is extremely important.
One thing you can do today that may make a big difference to your tomorrow is to make the most of your pension before the financial year comes to an end on 5 April. The sooner you take action, the better as the tax year ends in just under two months. Here are a few ideas of how to maximise pension saving and to unlock its hidden potential.
Tax relief is a great helper
Tax relief is one of the reasons why saving up for retirement with the Amey OS Pension Scheme is such a fantastic opportunity. It means you normally don’t pay any tax on the money you put in, which makes your money go further in the long run.
The amount of tax relief you get depends on the rate of income tax you pay. Basic-rate taxpayers (who pay 20% income tax) get tax relief at the same rate. If you’re a higher-rate taxpayer you get 40% tax relief, and additional-rate taxpayers get 45%.
So, if you’re a basic-rate taxpayer and want to put in £100, all that money will end up in your pension as you won’t get charged any tax on it. Otherwise, you would’ve been left with £80 as the taxman would’ve taken £20 off you.
Give your pension a boost
Given the sky high cost of everything out there at the moment, it is perhaps unlikely that you may have some cash sitting in your bank account, patiently waiting to be spent. If you do, however, or if you’re lucky enough to get a bonus, why not put it in towards your pension?
This could mean making a one-off contribution towards your pension before the financial year is up or topping up your regular contributions and paying in a little more each month. And, you’ll get tax relief from the government too. This could be a great way to make the most of your current pension Annual Allowance before this tax year comes to end on 5 April.
Working parents – pay in more to get your child benefit back
Did you know that any money you put in your pension doesn’t count as an income? This is handy to know, especially if you have children. Here’s why.
If your income is £50,000 or over, you may have to pay extra tax, also known as the ‘High Income Child Benefit Charge’. If you’re earning over £60,000, the tax charge becomes higher than the benefit itself, making it unviable to claim it.
This is why it makes sense to reduce what counts as your net income by putting in more towards your pension. That way, you would be in a win-win situation. You could keep your child benefit and boost your pension at the same time.
Power up your State Pension
Did you know you can make up lost time when you have not paid National Insurance (NI) contributions? The number of years you’ve paid NI may have a direct impact on whether you qualify for the State Pension and how much you’ll get. So if you have any gaps in the past, now may be the time to pay extra. You can usually pay voluntary contributions for the past six years.
The deadline for paying any voluntary National Insurance (NI) contributions is 5 April each year.
Check your NI record and learn about voluntary NI payments on the government’s website.
Make the most of your tax-free Personal Allowance
The standard Personal Allowance is the amount of income you do not have to pay tax on. It is currently set at £12,570. You will be charged tax on anything more you earn. If you earn between £100,000 and £125,000, you will lose your Personal Allowance gradually and you will have to pay tax on all your earnings.
Keeping this in mind, it seems sensible to look at ways to recover any loss from your Personal Allowance. You may be able to do this by increasing the amount you pay towards your pension. That way, you’ll be saving on tax and saving more towards your future at the same time.
Use your Annual Allowance wisely
There’s a limit on the total amount you can save towards your pension in a single tax year before you pay any tax known as the Annual Allowance. It is currently either 100% of your annual earnings or £40,000, whichever is lower, unless the Tapered Annual Allowance applies to you.*
With the start of the new tax year, the Annual Allowance will renew. So, if you haven’t used your whole allowance for this year, why not think about paying more in to make the most of it while you can. Saving tax free for your future is one of the most valuable benefits of paying in a workplace pension and it’s worth taking advantage of all the pros that come with it. That doesn’t mean paying in the full allowance, but paying in as much as is realistic and possible for you at this moment in time. With the pinch we are all feeling, it’s important to think about what’s right for you.
If you’ve maxed your allowance out for the 2022/23 tax year – that’s fine, you have other options. You can carry forward any unused allowances from the last three years. For example, if you have some unused allowance from two years ago, you can make use of it in the 2022/23 financial year.
You should also be mindful that there is a limit on the amount of pension savings you can build up in total before you pay extra tax. This limit is known as your ‘Lifetime Allowance’ (LTA).
The LTA is £1,073,100 for the 2022/2023 tax year and will be maintained at this level up to, and including, the 2025/26 tax year. Further details about the LTA can be found on the HMRC website.
Have a vision for the future
It always pays to plan ahead. So if you can’t afford to pay in a little bit extra before the end of the financial year, keep those tips in mind for the start of the new one.
You may find that a couple of months in the new tax year, you have a little bit extra to pay in either as a one off top up or a regular monthly contribution. If that’s not the case though, don’t worry – the fact you’re continuing
to pay into your pension even in these difficult times is incredible and it will pay off in the future, when you finish work and have the income you need to have a decent life in retirement.
*The Tapered Annual Allowance is a lower Annual Allowance and may affect you if your income is over £200,000.
Matt Riley
Manager
Matt joined Zedra Governance Limited (formerly PTL) in January 2008 having previously worked for Mercer Limited, Hazell Carr and Prudential.
As a Manager for the company's Birmingham Office, Matt’s responsibilities include working closely with Client Directors and individually liaising with Employers, Trustees and Members to ensure the smooth running of their pension schemes. Matt’s current portfolio of clients covers ongoing, paid-up and winding-up schemes. In addition, Matt has experience of schemes that have transferred or are in the process of transferring to the Pension Protection Fund and Financial Assistance Scheme. Matt also works closely with clients in relation to risk registers and internal controls.
Matt particularly enjoys resolving issues in a fair and pragmatic way ensuring that the right result is reached for the member or employer.
Sam Burden
Client Director
Sam Burden joined Zedra Governance (formerly PTL) in 2022. He is an Accredited Professional Pension Trustee (AMAPPT) and an Associate of the Pensions Management Institute (APMI)
Sam has more than 25 years’ experience in the pensions industry gained with WTW, KPMG, and Standard Life working with a wide range of pension schemes and sponsoring employers. His trustee appointments include DB, DC and hybrid pension schemes and he has experience of handling a broad range of projects relating to the management of pension schemes.
Beyond his pensions experience Sam is a former Birmingham City Councillor where he chaired the audit committee and a current charity trustee.
Payam Kazemian
Client Director
Payam Kazemian joined Zedra Governance Limited (formerly PTL Governance Limited) in 2021. He is an Accredited Professional Pension Trustee (AMAPPT) and an Associate of the Pensions Management Institute (APMI).
Payam has more than 17 years of experience in the pensions industry. Through his current role as a professional trustee, as well as previously as a pension’s de-risking and investment structuring expert at financial institutions including Goldman Sachs and Deutsche Bank, he has had overall responsibility for creating investment, de-risking, journey planning, and governance solutions for a wide range of UK DB pension schemes. He currently holds a number of board positions (as Chair of Trustees) and sole trustee in his professional trustee capacity. Payam has been involved with a number of pensions projects including pensions buy-in, pensions buy-out, GMP equalisation, investment strategy reviews, and dialogue with the pensions regulator. Payam looks to create and believes in a collaborative relationship between the sponsor, the trustee, and all other parties involved as this results in best member outcomes and helps deliver pragmatic solutions for scheme. Aside from his pensions experience, Payam holds a Ph.D. in Materials Science from the University of Cambridge.
