Pension Contributions
Saving for the future is a vital consideration- with more people living longer the need to have an effective pension is even more crucial. However while it is massively beneficial to have a secure pension that you regularly pay into it is also possible to get tax relief through the pension contributions you make into your pension. With this article we are going to look at the benefits of regular pension contributions and how to claim tax relief.
Annual allowance
You have an annual allowance of £40,000 a year for your pension- anything above that amount you will usually be expected to pay tax on. However it is possible to carry over any unused allowances from previous tax years into your current pension contributions.
The exception to this is if you take money out from your pension- this then means your allowance is then reduced to £10,000 a year (and can’t be topped up with unused allowances from previous years).
Automatic pension contributions
You will automatically get tax relief on your pension if you work for a company and your employer deducts this before deducting income tax or if a pension provider claims it for you- typically this will be at the rate of 20% and will be added to the overall amount (this is referred to as “relief at source”)
It is important to ensure you do not get relief on more than 100% of what you earn as HMRC can ask to be repaid anything above this limit.
Automatic relief also applies if you don’t pay income tax (this applies to the first £2880 you pay into a pension) or if the pension provider claims it for you.
Life insurance
You can only claim on life insurance if it is a protected policy and doesn’t apply to a personal term assurance (a policy that ends when the first person insured dies or covers all the people in one family).
Claiming it yourself
You may have to claim tax relief yourself if you pay more than 20% income tax, the pension that you have doesn’t offer automatic relief or if someone has set up/paid into a pension on your behalf.
If you pay 40% income tax you either fill in a self assessment form or contact HMRC directly (phone/post, not email) in order to put in a claim for the extra 20% on your pension (this increases to 25% if you pay 45% tax rate)
If your pension doesn’t feature automatic relief you should also contact HMRC or fill in a self assessment form in order to claim (please note you can only do this if your chosen pension provider is registered with HMRC).
Find out more
With the rules recently relaxed in terms of when people can take money from pensions and what they can expect from their pensions. While this has allowed for more options it can be overwhelming.
If you want to know more about what is available to you and what pensions are best for you (as well as what relief you can claim) contact PSI Accountancy today and we will be happy to discuss your options in more detail. Alternatively, you can find out more information about us here.
Leave a Comment