Tax Relief

The best way to get tax breaks for pension contributions

I am a member of my company pension scheme and have a private supplementary pension into which I pay monthly. I just got a raise that puts me in the higher income tax bracket. I know that I am giving my pension contributions tax relief for both systems at the base rate. Can I now additionally relieve myself because I am paying the higher tax rate, and if so, what do I have to do to claim this?

Richard Barker is a Chartered Financial Planner Image: Smith & Pinching
– Credit: Archant

Richard Barker from Smith & Pinching answers:

You will be pleased to hear that you can indeed fully relieve your pension contributions, provided you do not exceed the annual contribution exemption (see below).

The tax-free allowance of 20% is usually automatically added to your contributions by your pension insurance company. The additional 20% must either be claimed through your self-assessment tax return, if you fill in one, or through an adjustment of your tax number. If you typically don’t fill out a tax return, you should contact HMRC to make sure your tax code is adjusted.

The standard annual pension contribution is £ 40,000 or 100% of your eligible income. This allowance is reduced in two special cases. It is reduced to just £ 4,000 when you make flexible withdrawals from your retirement fund, and it is reduced in increments for very high income.

In addition to the annual allowance, there is a life-long pension fund allowance. Your total retirement savings cannot exceed this allowance, which is currently £ 1,073,100, or you will have to pay a tax burden.

Good to hear that you provide for your old age with both your company pension and a separate private pension. It can be helpful to have a conversation with an independent financial advisor from a Chartered Financial Planner firm to find out what you may need to invest in annuities in order to meet your retirement goals. This would allow you to review the suitability of your current systems and the contributions you have made, and give you the opportunity to make changes if they do not perform well to get you where you want to go in retirement.

None of the opinions expressed in this article constitute advice. The value of an investment and the income from it can 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.

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