Pension contributions

With the end of the tax year looming, you might be wondering whether you should top up your Pension(s) before the 5 April deadline. ‘Pension Freedoms’ have added to the attractiveness of Pensions as an investment. However, I meet many people who don’t understand all the benefits. This article briefly explains them.

Tax relief
While interest rates on savings are still very low, the tax relief a Pension can attract adds to its growth, making it an interesting investment to consider.

At the time of writing, higher rate tax relief is still available.

Example

If you earn £55,000 and want to make a £10,000 contribution to your Pension, you would only need to pay £8,000 yourself, with the other £2,000 being added to your contribution in the form of tax relief. (This example assumes you are making no other Pension contributions.) You could then also claim a further £2,000 tax relief via your tax assessment, meaning it has really cost you only £6,000 to put £10,000 into your Pension.

The benefits are not just for individuals. Pensions are also attractive to businesses, as they can be treated as an allowable business expense and offset against your company’s corporation tax bill.

Pensions can be valuable for inheritance tax planning too, and we find they are a vehicle that is often overlooked.

However, Pensions can also be quite complex – there are restrictions on how much you can pay in each year as well as on the total you can accumulate over the lifetime of a Pension. There are penalties if you exceed these limits so, as always, we recommend you seek professional advice…

At Monetary Solutions Ltd, you can book a free initial consultation about any financial matters, so please call us on 020 8655 8488.

A Pension is a long term investment. The fund value may fluctuate and can go down which would have an impact on the level of Pension benefits available.

Levels, bases and relief from taxation may be subject to change and the value depends on the individual circumstances of the investor.