Five retirement planning fundamentals
By Kirsten Hastings, 29 Feb 16
With the tempo of pension reforms unlikely to slow, there are sure to be new pitfalls to avoid. But according to St James’s Place there are five retirement planning fundamentals that will remain. Use the arrows on the images below to find out what they are.
You can get tax relief on up to £40,000 of pension contributions made from earnings each year – this is the ‘annual allowance’ – but you could swell your pension pot significantly using the ‘carry forward’ rule.
The amount you can currently invest into a pension each year with tax relief is capped at £40,000. But if you have more cash designated for retirement, unused allowance from the three previous tax years can be carried forward and allocated to the present tax year.
By using the carry forward rule, you could add up to £180,000 to your pension this tax year and receive up to £81,000 in tax relief. That is good news if you have the necessary earnings to make such large contributions but, thankfully, smaller sums will benefit too.
From 6 April 2016, additional restrictions will come into effect which mean that those earning more than £110,000 a year could see their annual allowance tapered down from £40,000 to £10,000. For those at the top of the scale, the lost tax relief could amount to £13,500 a year.
With a reduction in the annual allowance from 6 April 2016, and potential cuts to the rate of available tax relief coming as soon as 16 March, top earners with the ability to carry forward pension contributions have a rapidly closing window of opportunity in which to benefit fully from the existing allowances and reliefs.
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