What should my pension priorities be?

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Ask the expert at Smith & Pinching about planning pensions for tax efficiency - Credit: Getty Images/iStockphoto

Now that Christmas is out of the way, I want to plan for the year ahead. I have decided to be more proactive about putting money into my pension and making sure that I’m not paying too much tax on my savings. What should my priorities be?

Phil Beck, Independent Financial Adviser with Smith & Pinching, Chartered Financial Planners

Phil Beck, Independent Financial Adviser with Smith & Pinching, Chartered Financial Planners - Credit: Smith & Pinching

Phil Beck of Smith & Pinching responds:

Now is certainly a good time to think about your planning, as we start the last quarter of the current tax year. There are a number of reliefs and allowances that you can use to save tax, but you should use them before the end of the tax year on April 5.

Putting money into a pension scheme is a tax-efficient way of saving as your contributions attract tax relief, adding value to your contribution. There is an annual allowance for pension contributions: for most people this is the lower of your total earnings or £40,000, but there are circumstances where it is reduced, such as if you have started taking flexible benefits from your fund or if you are a particularly high earner. An unused annual allowance from the previous three years can be used, but you must use the current year’s allowance first.

For savings and investments outside your pension scheme, ISAs are usually the first port of call. There are two principal types of ISA – Cash ISAs and Stocks & Shares ISAs. With both types, any returns or gains are tax-free both while your money is in the ISA and when you make withdrawals. There is a £20,000 limit on how much you can save in ISAs each tax year. You can’t carry ISA allowances forward from one tax year to the next.

Savings and investments outside ISAs are subject to two other allowances per tax year. You may have a personal savings allowance of up to £1,000, depending on the rate of tax you pay, plus a dividend allowance of £2,000. Neither of these allowances can be carried forward into the new tax year.

Think carefully about how you invest any surplus capital or income. I strongly recommend that you get independent financial advice to allow you to put together a tangible and achievable financial plan that not only ensures tax efficiency for your savings but also puts you on track to achieve your targets for the future.

Any opinions expressed do not constitute advice. The value of your investment can go down as well as up and you may get back less than the amount invested. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

For more information, please visit www.smith-pinching.co.uk