How to give your pension a last-minute boost

Those close to retirement can significantly reduce the tax man's take on savings

red metal pension fund cash tin

Workers nearing retirement could give themselves a handy tax boost by piling their spare income into their pension.

When it comes time to retire, the tax man will be entitled to a smaller cut than if you'd simply set the money aside in a savings account.

That's because, under the recent pension freedoms, retirees can make withdrawals with the first quarter tax-free.

As This Is Money explains, this could mean a pension boost of up to 41% for higher-rate taxpayers.

Calculate your pension income options

A practical example:

A basic-rate taxpayer pays £20% tax, while higher-rate taxpayers will hand over 40% of income.

So for every £1,000 earned, you would pay £200 or £400 tax, depending on your tax status.

But by putting that money into your pension and waiting until you retire to access it, the first quarter (£250) would be tax free, meaning you'd pay either £150 or £300 tax – a tax saving of up to £100 on every £1,000.

But, as This is Money notes, higher-rate taxpayers will get an additional boost if they become basic-rate taxpayers upon retirement.

In such a situation, you'd be able to keep hold of £850 of every £1,000 rather than just £600 for accessing it now – an increase of 41.5%.

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