The last day of the tax year is coming up on 5 April. This may seem soon, but there’s still plenty you can do to make the most of your pension plan before then. So here are our top tips to help you give your pension plan a boost before the tax year is up.
1. Use your pension allowance
Your pension annual allowance is the total amount that you, your employer and any third party can pay into your pension plans in a tax year. The limit is currently £40,000 or 100% of your earnings in a tax year, whichever is lower, although it could be less if you’re a higher or non-earner, or if you’ve already started taking money from your pension savings. You can find out more about the pension annual allowance in our guide.
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.
If you’ve already used all of your annual allowance for the 2021/22 tax year – don’t worry, you might still have options. If the £40,000 annual allowance limit applies to you and your circumstances allow for it, you can usually carry forward any unused allowances from the last three tax years.
2. Top up your contributions with pension tax relief
Tax relief makes your pension plan one of the most tax-efficient ways to save for your retirement. In a nutshell this means 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% 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% back from the government depending on how your contributions are being paid.
Some workplace pension schemes offer tax benefits in a different way (salary sacrifice or salary exchange schemes, for example). So do check with your employer how this works for you if you’re not sure.
You can find out how pension tax relief works and how to make the most of it by reading our article.
Paying a little more into your pension could make a big difference and help give your plan an extra boost. If you want to top up your pension contributions or make a one-off payment to your Standard Life pension plan, you can do this by logging in or registering for online services.
Remember, a pension is an investment. Its value can go down as well as up and it could be worth less than what was paid in.
3. Take advantage of your workplace pension plan
Workplace pension plans are a great way to save more for your future because your employer has to contribute too. At least 8% of your qualifying earnings will be paid in, and a minimum of 3% 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.
4. Want to keep more of your bonus?
If you’re lucky enough to get a work bonus, you might have the option to put some or all of it into your pension plan. Doing this could save tax and National Insurance deductions, meaning you get to keep more of it in the long run. And it could be a good way to make the most of your current pension annual allowance before 5 April.
You can read all about the benefits of doing this in our bonus sacrifice article.
5. Get your tax-free personal allowance
Most people get a tax-free personal allowance – which increased to £12,570 for the 2021/22 tax year. When your taxable income reaches £100,000, your personal allowance is cut by £1 for every £2 of your income. And you lose it once your income reaches £125,000 (in the 2021/22 tax year).
You may be able to recover any loss to your personal allowance by reducing your income through making pension contributions – that way you’re making tax savings and contributing more to your future at the same time.
6. Get your child benefit back by paying more into your pension plan
Worth around £2,500 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.
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.
Preparing for tax year end
To make the most of all the benefits your pension plan has to offer, consider paying in more. This could mean making a one-off payment before the end of the tax year to get closer to meeting your pension annual allowance. Or it could mean topping up your regular contributions and paying in a little more each month. It all adds up and could really help give your pension savings a boost over time.
Your own personal circumstances, including where you live in the UK will have an impact on the tax you pay. Laws and tax rules may change in the future.
You can manage and review your contributions to your Standard Life pension by logging in or registering for online services.
For more tips on how to make the most of your pension benefits before tax year end, watch our 3-minute video.
A pension is an investment and its value can go down as well as up and may be worth less than was paid in.
The information here is based on our understanding in March 2022 and shouldn’t be taken as financial advice. If unsure, you should seek financial advice for which there is likely to be a charge.
Standard Life accepts no responsibility for information in external websites. These are provided for information only.