Pensions may sometimes be forgotten as a form of investment but they are still one of the best ways to secure your financial future in retirement, according to wealth management experts EFG Independent Financial Advisers in Birmingham and Wolverhampton.
Managing director John Male pointed out that that pensions can deliver both tax relief and tax efficient growth.
“Tax relief and tax efficient growth make the idea of contributing to your pension attractive at any time, but if you get your timing right you can make a real difference to the end result when you come to retire,” he said.
“For example, a higher rate taxpayer using their full £50,000 annual pension allowance can convert a £20,000 tax bill into their own retirement savings.”
EFG-IFA is highlighting a number of good reasons why you should still considering paying into a pension this tax year.
– Benefit from personal tax relief at your top rate of tax. If you are a higher, or, additional rate tax payer this year but are uncertain of your income level in the next tax year, a pension contribution now could attract tax relief at your highest rate of tax.
– Carry forward any unused annual pensions allowance from 2010/11. Unused pension annual pension allowance from 2010/11 must be used this tax year, or, you lose it. For a 40 per cent taxpayer, it could mean a missed opportunity to invest up to £50,000 at a net cost of only £30,000.
– Make the most of the current £50,000 annual pension allowance. This allowance drops to £40,000 from 6th April 2014. Carry forward for the three previous tax years back to 2010/11 will still be based on a £50,000 allowance. Up to £200,000 can be paid to pensions for this tax year without triggering an annual allowance tax charge.
– Recover personal allowances reduced by additional income. Pension contributions reduce your taxable income so, if applicable, they are a great way to reinstate the personal allowance and the age related element of your personal allowance.
– Avoid the Child Benefit tax charge. An individual pension contribution can ensure that the value of Child Benefit is saved for the family, rather than being reduced or lost to the new Child Benefit tax charge. It might be as simple as redirecting existing pension saving from the lower earning partner to the other.
– Fund and protect above the new £1.25 million Lifetime Allowance (LTA). With the LTA set to fall to £1.25 million from April 2014, now is the time to weigh up the pros and cons of electing for the new “fixed protection 2014” to lock into a £1.5 million LTA. However, you cannot in this case pay into pensions after April 5, 2014. This only leaves a short window to protect your tax efficient contributions and build a bigger retirement pot to protect.
John Male said: “Some people think extra pension savings are for the wealthy, but many business owners pay themselves largely via the dividend route and the amounts can vary depending on whether they have had a good year or not.
“As the points above show, there are many more people who can benefit than might be obvious at first sight.
“It could pay you to check out the possibilities as maximising your pension contributions can make a major difference to your comfort and lifestyle in retirement.”
