Tax, investments and pension rules can change over time so the information below may not be current. This article was correct at the time of publishing.

What pension allowances should I be aware of in the UK?

A pension is one of the most tax-efficient ways that you can save for your future. You will automatically receive basic rate tax relief of 20% on any pension contributions you make. If you are a higher or additional rate taxpayer than you can claim tax relief at 40% or 45% respectively through your annual tax return.

Effectively, basic rate taxpayers only need to pay in £80 to their pension to top it up by £100.

Investing into a pension provides the opportunity for you to build up a pot to provide you with a comfortable retirement. Your personal pension cannot be accessed until age 55 (rising to 57 in 2028). The age limit means that your pension will remain invested for a long time period and will be used to help fund your retirement lifestyle as you cannot access it any earlier.

How much can I invest into my pension each year?

The pension annual allowance is complex, and you would benefit from seeking financial advice in this area.

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There is no limit as to how much you can pay into your pension each year. However, you will only receive tax relief on up to 100% of your annual earnings or £40,000 (whichever is lower). The total sum of any pension contributions whether it is personal, employer or government tax relief cannot exceed this.

For those who have already begun drawing down on their pension, the annual allowance for new pension contributions may be capped at £4,000 per year.

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What is the Carry Forward Allowance?

You may be able to carry forward your previous unused allowances for the previous three tax years up to a maximum of £120,000. You must have been a registered member of a UK pension scheme at the time. This is a complex area depending on the type of pension scheme that you are looking to carry forward your allowance to.

Book a no-obligation meeting to discuss your options

How much can I invest in a pension for a child?

A parent or legal guardian can open a pension for a child to give them a head start at saving for their retirement. The maximum amount you can save is £2,880 which is topped up by 20% tax relief to £3,600 per year.

How much can I invest in a pension if I am not working?

Similar to a child, if you are not receiving any income then the maximum you (or someone else on you behalf) can contribute to your pension is £2,880 a year which is £3,600 with tax relief.

What is the Lifetime Allowance?

The Lifetime Allowance is the total amount that you can build up in your pension pot without incurring a tax charge. In the 2022/23 tax year the Lifetime Allowance is currently £1,073,100.

At Four Wealth Management, we can run calculations and projections to see if it is likely that the value of your pension benefits is close to or could potentially exceed the current lifetime allowance in the future.

Exceeding the lifetime allowances means that you could be liable to pay additional tax at 25% or 55%. There may be options for you to protect your lifetime allowance.

If you are close to the allowance, then your financial adviser at Four Wealth Management may recommend alternative investments to you that will be more tax efficient and help you to avoid additional tax penalties.

This is a complex area and you should take advice to make sure you are making the right decisions for your personal circumstances.

 Book a no-obligation meeting now

Advice can help you to navigate the pension rules successfully

If you are unsure which allowances you need to be aware of, you can book a no-obligation meeting with a financial adviser at Four Wealth Management to create a bespoke retirement plan tailored to you.

Your financial adviser will let you know of any tax changes that will affect your individual circumstances.

Book a no-obligation meeting online now or call 0117 973 0500.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.

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If you have any queries or would like to arrange a face to face meeting with an adviser for a no obligation review of your personal finances, simply book a call back using the form below. Alternatively, you can call us on 0117 973 0500.

The Partner together with St. James's Place Wealth Management plc are the data controllers of any personal data you provide to us. For further information on our uses of your personal data, please see the Partner's Privacy Policy or the St. James's Place Privacy Policy.

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What pension allowances should I be aware of in the UK?
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