Make sure to make full use of the pension allowance this tax year
It is never too early in the tax year to start thinking about making pension contributions, especially given the potential tax savings on offer.
Individuals can contribute to their pension pots tax-free, providing they don’t go over the £40,000 annual limit.
You can make use of any annual allowance that you may not have used in the previous three tax years, as long as you were a member of a registered pension scheme at the time.
You can use this carry forward if you’re an active member currently building up pension benefits, a pensioner member in receipt of pension benefits from your pension scheme, a deferred member with paid-up pension benefits or a pension credit member that has a share of your ex-partner’s pension.
The annual allowance applies across all of the schemes you belong to, meaning that it’s not on a per scheme limit, and it includes all of the contributions that you, your employer or anyone else pays on your behalf.
Savers must, however, be aware of their lifetime pension allowance. This is a limit on the amount of pension benefit that can be drawn from pension schemes, whether lump sums or retirement income, without triggering an extra tax charge.
The current lifetime allowance for the tax year 2021/22 is £1,073,100. Many people rarely meet this limit in their lifetime, but savers should take action if the value of their pension benefits is approaching this allowance.
Managing your pension contribution effectively can have a significant impact on your annual tax bill, allowing you to reduce your taxable earnings.
Used alongside other tax-efficient investments and tax-free saving schemes, such as ISAs, you can significantly reduce the amount of tax you pay. To find out how we can help you manage your pension and saving contributions in a tax-efficient manner, please contact us.
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