How to supercharge your pension this year

The new tax year started on 6 April and it brings plenty of opportunities to supercharge your pension planning. In addition to reviewing your contributions to see if you have the wiggle room to increase them, there are strategies you can make use of to boost your pension.

You can take advantage of your annual allowance, which enables you to save up to £60,000 per year into your pension. If you haven’t been in the position to contribute much in recent years, you can use the carry forward rules to use unused allowances from the previous three tax years. This could see you boost your pension balance by up to £200,000.

Even those who have already flexibly accessed their pension in the past can continue to rebuild it using their £10,000 money purchase annual allowance.

However, there are things you need to be careful of. It’s not a given that you will automatically get the full amount of tax relief that you are entitled to. If you are a higher or additional rate taxpayer, in a pension set up under a relief-at-source arrangement, you will receive basic rate tax relief on your contribution but will need to reclaim the remainder on your tax return. Making sure you do this before January’s self-assessment deadline can boost your pension by thousands of pounds.

This new tax year also sees the abolition of the lifetime allowance — a move that should have simplified people’s retirement planning.

Read more: How to prepare your pension to live to 100

However, it’s set to leave many people disappointed as the rules still need to be tweaked and HMRC has advised people should consider delaying taking certain benefits until the rules are finalised. It’s a disappointment that people who have made plans for their retirement are being left in limbo like this.

Top tips to boost your pension this year

1. Take full advantage of your allowances

You can save up to your annual earnings or £60,000 (whichever is the lowest) into your pension every tax year and still benefit from pension tax relief. As a higher rate taxpayer, you would get 40% tax relief on this meaning your £60,000 contribution has only cost you £36,000.

However, it’s important to check what your annual allowance is. If you have already accessed your pension flexibly and are looking to rebuild it, you are subject to the money purchase annual allowance which limits your contributions to £10,000. Higher earners — those earning over £260,000 per year — could find themselves subject to the tapered annual allowance which can see your annual allowance reduced to as little as £10,000.

2. Use carry-forward if you can

If you have any unused relief from previous tax years, then you can also make use of this (as long as you aren’t contributing more than your annual earnings).

Read more: Tackling the myths holding back your pension planning

This rule is called carry forward and it allows you to use allowances from the previous three tax years. This means in this tax year you could pay up to £200,000 into your pension and benefit from tax relief.

3. Don’t forget to claim tax relief

Receiving the tax relief that you’re entitled to sounds like it should be a given, yet in the five years to 2020/21, pension savers missed out on £1.3bn of tax relief.

In most cases, basic rate tax relief will usually be added to your pension contribution. But if you’re a higher or additional rate taxpayer you may need to claim the extra 20% or 25% tax relief through self-assessment.

You won’t need to put in a claim if your pension is set up as a salary sacrifice arrangement. However, if your pension is set up under what is known as relief-at-source, or if you’re paying into a personal SIPP, you will need to claim the extra tax relief through a tax return.

The deadline for self-assessment is not until 31 January, so you’ve got some time to prepare, but you can do it immediately now we’re into a new tax year. It’s an important part of the form to fill in to make sure you get what you are entitled to.

4. Regularly review your contributions

It’s tempting just to set your pension contributions when you start a pension and then never look at them again. However, revisiting them at key periods can really boost your retirement resilience.

Increasing contributions every time you get a pay increase or new job can be an easy way of getting more into your pension.

Read more: How to tell if you’ve saved enough money for retirement

The same goes for checking what your employer is contributing. Many employers stick to auto-enrolment minimums when it comes to their contributions, but there are others who are willing to pay in more. Some will potentially hike them even further if you increase your contribution — a process known as employer matching.

Over time this can make a huge difference to how much goes into your pension, so if your employer offers it and you’re able to take advantage you could really boost your pension prospects.

5. The lifetime allowance has been abolished

The abolition of the lifetime allowance will see the back of the lifetime allowance tax charge. However, its removal has proved complex and HMRC has advised the rules will need to be tweaked in the coming months. As a result, some people will need to delay their retirement plans for a while until there is more clarity.

Watch: What is pensions dashboard and how it will make retirement investment more transparent

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