- Important to make use of tax allowances to get the most of your pension contributions before end of tax year.
- You can use carry forward or even contribute to a spouse’s pension to boost either your or your family’s financial planning.
- Many people leave their contributions to the end of the tax year. 8,710 HL customers made their first pension top up between 30 March and 5 April last year.
- There was one SIPP top up every 22 seconds on the last day of the tax year last year with 80% being made via the HL website.
- Try not to leave things until the very last minute though.
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown
“Tax year end is approaching rapidly but it’s not too late to make the most of your pension contribution. Last year we saw over 8,700 HL customers make their first pension contribution of the year in the last week and on the last day we had one SIPP top up every 22 seconds.
However, make sure that what is done in haste does not come back to bite you. Making rushed last-minute decisions to top up your pension can lead to you busting allowances and potentially incurring tax charges. It is always better to plan ahead.
Being able to top up online is quick and easy but it’s important not to leave it until the very last minute. Make sure you leave enough time to deal with any issues that may arise.”
Here’s our top tips
- Don’t bust your annual allowance. For many people their annual allowance is the lower of £40,000 or how much they earn in that tax year. However, if you have a high income or have already accessed your pension then your annual allowance can be as low as £4,000 and you will incur a tax charge if you go over these limits. Make sure you know what your allowances are so you can make the most of your tax relief without incurring charges.
- Make the most of tax allowances from previous years. If you haven’t used up all your annual allowance for the previous three tax years, then you can use carry forward to make a larger contribution. However, you need to have been a member of a registered pension scheme during those years and you must earn more than the amount you are contributing -for instance if you want to contribute £100,000 to your pension then you need to be earning more than £100,000 in that tax year. Also, if you are affected by the tapered or money purchase annual allowance that will affect how much you can put in.
- Don’t be put off making a contribution because you don’t know how to invest it. You can make the contributions and benefit from the tax relief and make the decision on investment later.
- You can pay into someone else’s pension. If you have maxed out your own contributions, then you could top up your partner or child’s pension instead. You can pay up to £2,880 into the pension of a partner who isn’t working, or a child and the contribution will receive tax relief giving them a contribution of £3,600. If your spouse works then you can contribute up to their annual allowance (minus any other contributions they or their employer makes.) Over time these contributions can make a huge difference to your family’s financial resilience.
- Don’t leave it until Tuesday night. Being able to make contributions via provider apps and websites is quick and easy but don’t leave it until the very last minute. Make sure you have enough time to attend to any delays you might come across.