Published On: Tue, Aug 27th, 2019

Tax on pension contributions: How you could boost your pension fund by up to £160,000 | Personal Finance | Finance

Planning for retirement is something many people will think about during their working lives. While the state pension is something eligible people may claim once they reach state pension age, many will make regular contributions to a private pension. Tax relief can apply to pension contributions, worth up to 100 per cent of one’s annual earnings. There is an annual allowance, and this is the most a person can save in their pension pots in a tax year, before tax must be paid.

In the 2019 to 2020 tax year, from April 6 to April 5, this is £40,000.

Currently, the lifetime allowance is £1,055,000, with tax usually being required to be paid if pension pots exceed this.

Michael Angus, Wealth Planning Director and Chartered Financial Planner at Sanlam, has shared some tops tips to help savers make the most out of their pension.

He told “You can use a process called ‘carry forward’ to increase your pension contributions.

“Carry forward allows unused annual allowance from the three previous tax years to be used in the current year.

“This means that if you have not contributed to a pension at all in the three previous tax years, and you have sufficient earnings, you may be able to boost your pension fund by up to £160,000.

“Much of that money would be contributed by the government, so a higher-rate tax payer on a marginal rate of 40 per cent could add £96,000 to their pot and receive £64,000 from the Treasury.

“These figures would be even more attractive with Scottish tax rates.”

Another word of advice Mr Angus revealed is avoiding additional costs.

“The lifetime allowance – the amount that you can withdraw from your pension schemes through lump sums and retirement income without triggering an extra tax charge – has also been reduced, from £1.8 million in the 2011/12 tax year to just £1.055 million.

“If you exceed this limit you could incur tax charges of 55 per cent or 25 per cent, depending on how you take the money.

“There are ways to avoid having to pay additional tax and this includes ‘protection’ schemes offered from 2006 onwards.

“Two forms of protection are available – fixed protection 2016 and individual protection 2016.”

Mr Angus explained that more information is available at’s Protect your pension lifetime allowance guide, and added: “But it is complex and you should speak to a financial adviser before making any decisions.”

Another tip is to plan for one’s future.

“It is impossible to predict what the government will do next when it comes to pensions,” Mr Angus said.

“But don’t let this deter you from using a flexible and tax-efficient way of saving.

“The best way to deal with uncertainty about the future is to make the most of the allowances and tax reliefs that are available right now.

“Talk to your financial adviser about how to maximise – and protect – your pension contributions and look forward to reaping the benefits when you retire.”

READ MORE: Pension WARNING: ‘Disengaged’ 38% of Britons face annual £12,000 pension shortfall

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