- Most people have an annual allowance of £40,000 per year. However, if you are a high earner or have already accessed a pension then your maximum contribution could be as low as £4,000 per year.
- You can contribute more than £40,000 in a year if you have unused contributions from previous tax years. This is called carry forward and you can use unused annual allowance from the previous three tax years without incurring a tax charge.
- Have you maxed out your employer contributions? While many employers contribute at the auto-enrolment minimum there are others who will contribute more if you do. These extra contributions can be significant and really boost your pension over time.
- If you have maxed out your own pension contributions, you could contribute to your spouse or partner’s pension. If they don’t work, you can contribute up to £3,600 per year to their pension or if they work, they can contribute up to the amount they earn or £40,000 per year (whichever is lower). These amounts include tax relief.
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown:
“With five weeks to go until tax year end there is still time to turbo charge your pension contribution and potentially make a huge difference to your retirement.
One potential quick win is to make sure you are making the most of your employer contribution. While many employers contribute at auto-enrolment minimums, there are others who will offer an employer match – this is where they will match your increased contribution up to a certain level. Over time this can give your pension planning a significant boost so it’s well worth investigating if your employer offers it.
If you’ve got a bit more spare cash, you can also look at making a one-off larger contribution to your pension. Many people can contribute up to £40,000 per year to their pension and still get tax relief. While contributing £40,000 is a tall order for many people you might find it becomes possible if you have received any windfalls or inheritances.
Making such a contribution – even as a one-off – can have a significant impact on your retirement planning and if left invested for several years could leave you with a much larger pension than you otherwise would have. Approximately 3,700 HL clients opted to boost their contribution last year by contributing exactly £40,000 to their pension.
However, care must be taken if you are a high earner or have already accessed your pension as your annual allowance could be slashed to as low as £4,000. Any contributions above this amount could attract a nasty tax charge so keep an eye on what your limits are before contributing.
Other less well-known strategies include using carry forward. This is where you can utilise under-used annual allowances for the past three tax years to make an enhanced contribution to your pension. If you haven’t made a pension contribution for the previous three tax years, then you can potentially contribute as much as £160,000 and still get tax relief. Again, this is something only the wealthiest can consider and they will need to check they are not affected by the tapered annual allowance before doing so.
If you’ve already maxed out your pension contributions, you can boost someone else’s. For instance, if your partner is not working then you can contribute up to £3,600 per year including tax relief to their pension. You can also so this for children via a Junior SIPP for the ultimate in family financial planning.”