If you are under 75 years old and have some spare cash to save each month, don’t forget you can still put money into a pension and pick up a tax boost.
The good news is you do not have to work to save into a pension and even in retirement, pensions are one of the most tax efficient investments around.
Even better news is that if you open a pension and pay some cash in before April 5, you will benefit from your full current financial year’s allowances.
Tax boost for pension savers
Pensions have several clear tax and financial benefits:
- The government tops up pension contributions according to the rate of income tax you pay – so to contribute £100, a 20% taxpayer only has to save £80. For higher rate taxpayers, £100 of savings comes with a contribution of just £60.
- If you have a partner under the age of 75, you can pay into their pension too, and they will get the same tax boost
- If you are over 55 years old, you can take money from your pension – the first 25% is generally tax free and the rest is taxed like any other income
- Unspent pension cash is passed to loved ones when you die generally free of inheritance tax and in some cases, tax free to the beneficiaries
How much can you pay in?
How much you can pay into a private pension depends on your personal circumstances:
- If you do not work, the pension contribution limit is £3,600 a year, which is £2,880 cash plus the tax top up.
- If you work, the annual allowance is all your wages up to a maximum £40,000. For earnings above £150,000 a year, the allowance tapers to £10,000. The allowance includes the tax top up
- If you have already taken money from your pension, regardless of if you work, the limit drops to £10,000 a year. The allowance includes the tax top up
- If you pay into someone else’s pension, their own limits apply and the money you gift them and however much you give them does not change your personal limits.
While savings sit in a pension, the fund grows tax-free.