Investing in your pension is one of the most tax-efficient ways you can save for your future due to the generous tax relief benefits. If you are a basic rate tax payer and you want to invest £100 into your pension, you only need to top up £80 and the government will automatically add tax relief of 20% which is £20. If you are a higher or top rate tax payer you will need to claim back any additional tax relief on your annual tax return.
If you have already started drawing money from your pension, you can still continue to top up your pension if you are a UK tax payer and under the age of 75. This means your contributions benefit from tax relief as explained above and any growth on your investments are tax free. When you are able to take income from your pension, subject to any tax free cash tax, the rest of your pension pot would be taxed as earned income.
Use your pension to mitigate your Inheritance Tax liability
Any assets left in your pension pot after you die are free from Inheritance Tax so you may want to consider continuing to top up your pension in retirement to pass on your assets to your loved ones more tax-efficiently.
Find out more about retirement planning
How much can I contribute to my pension?
If you are no longer earning or earn less than £3,600 per year, the maximum you can contribute to your pension each year is £2,880 which the government automatically tops up with tax relief of £720 to bring the total to £3,600. If you do this for 10 years you would receive £7,200 in tax relief alone which you can spend or pass onto your loved ones. Your initial investment and the tax relief also have the potential to grow in value free from tax.
If you are still working but have flexibly accessed your pension already through drawdown or by taking a lump sum then you and your employer are only able to contribute £4,000 per year. If you exceed this then the excess will be added to your income and taxed at the highest rate.
If you are still working and have not yet accessed any of your pension then you can still contribute up to the annual pension allowance which is £40,000 per year for most people.
Find out more about your options at retirement
Find out more about contributing to your pension after retiring
Tax rules around pensions are complex and constantly changing, at Four Wealth Management a Financial Adviser can determine if contributing to your pension after retirement is suitable for your individual circumstances.
Call us on 0117 973 0500 to book a no-obligation financial review.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.
