I am a member of my workplace pension scheme and have an additional private pension that I put money into on a monthly basis. I’ve just been given a pay rise that takes me into the higher income tax bracket. I know that I get tax relief on my pension contributions for both schemes at the basic rate. Can I get extra relief now that I pay tax at the higher rate and, if so, what do I need to do to claim it?
Richard Barker of Smith & Pinching responds:
You’ll be pleased to hear that you can indeed get full tax relief on all your pension contributions, provided you don’t exceed the annual allowance for contributions (see below).
The 20% basic tax relief element will normally be added automatically to your contributions by your pension provider. The additional 20% will need either to be claimed via your self-assessment tax return, if you complete one, or via an adjustment to your tax code. If you don’t normally complete a tax return, you should contact HMRC to ensure your tax code is adjusted.
The standard annual allowance for pension contributions is £40,000 or 100% of your qualifying earnings. This allowance is reduced in two specific circumstances. It will be reduced to just £4,000 if you have started taking flexible withdrawals from your pension fund, and it will be subject to a tapered reduction if you have very high earnings.
In addition to the annual allowance, there is a lifetime allowance for pension funds. Your total pension savings when you come to retire mustn’t exceed this allowance, which currently stands at £1,073,100, or you will be subjected to a tax charge.
It’s good to hear that you are making provisions for your retirement years with both your workplace pension and a separate private pension. You may find it useful to have a discussion with an Independent Financial Adviser from a firm of Chartered Financial Planners to explore what you might need to invest in pensions in order to achieve your retirement objectives. This would allow you to consider the suitability of your current schemes and the contributions you are making and give you the opportunity to make changes if they are not achieving the performance needed to get you to where you want to be when you retire.
Any opinions expressed in this article do not constitute advice. The value of an investment and the income from it could go down as well as up. 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
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