- Make sure you are making the most of your employer contributions in your workplace pension.
- You can contribute the lesser of your annual earnings or £40,000 a year to your pension and receive tax relief.
- If you have any left-over annual allowance from the previous three tax years you can also use this to boost what you put into your pension. This is called carry forward.
- If you have used up your allowances, then you could boost the retirement prospects of a loved one through a partner or child’s pension.
- If you are aged under 40 then a Lifetime ISA could be a good retirement planning option.
- If you have already flexibly accessed your money purchase pension or are a high earner you will be hit with restrictions on your annual allowance.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown:
“We are five weeks away from tax year end, so you still have time to give your retirement planning a real boost. You can put up to £40,000 a year into your pension and if you have any left-over allowances from the three previous tax years you can use them to boost your contribution and make a real difference to how much you end up with in retirement.
If you are in a workplace pension scheme, then it is important to make the most of your employer contribution. Many employers only contribute at auto-enrolment minimum levels (3%) but there are others who are willing to do more if you do too – this is what is known as an employer match. It’s well worth checking to see if your employer offers such a thing and if you have any spare cash boosting what you put in accordingly.
If you have used up your own allowances, then contributing to a loved one’s pension – a partner or a child could be a good option. Up to £2,880 per year can go into to the pension of a child or non-working spouse and they will benefit from tax relief boosting it up to £3,600. It’s a great way of topping up a partner’s pension while they aren’t working or getting a child’s retirement planning off to a flying start.
However, it’s really important not to get tripped up by the various allowances at play which could land you with a tax charge. Very high earners could find they are hit with the tapered annual allowance which can whittle the amount they can put away down to as little as £4,000 per year. Similarly, people who needed to access their money purchase pensions to top up their income during the cost-of-living crisis may find they have triggered the Money Purchase Annual Allowance which again restricts contributions to £4,000 per year. If you bust either of these allowances, you will land yourself with a tax bill.
A LISA could be nicer….
Retirement planning is about more than just pensions and Lifetime ISAs also have a significant role to play. If you are under 40 you can contribute up to £4,000 per year up to the age of 50 and receive a 25% government bonus – this along with investment returns over time can leave you with a healthy sum that can be used alongside or instead of pensions. The ability to access your money early (subject to a penalty) if you really need to may also make it an attractive option especially for groups such as the self-employed. You can also contribute to the LISA of a loved one if you have used up your allowances though you will be unable to open the account on their behalf – they will need to do that themselves. You also need to be comfortable with the fact that once they have received your contribution it is legally theirs.