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4 pension mistakes to avoid this tax year end

We take a look at how you can make the most of your pension this tax year.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

The end of the tax year is fast approaching, which could be your last chance to secure up to 45% tax relief from the government.

5 April should be a key date in your calendar if you want to make the most of this benefit.

If you’re considering adding money to a pension before then, avoiding these common mistakes could help save you tax. Tax rules can change and benefits depend on your circumstances. The tax rates and bands are different if you’re a Scottish taxpayer.

Remember this article and our website don’t give personal advice. If you’re unsure, please ask us for advice.

1. Not using your pension to help you cut your tax bill

Millions of people don’t know that the government boosts pension savings – which means they could be missing a chance to save tax.

If you didn’t already know, for anything you pay into a private pension the government adds 20% in tax relief to encourage people to save for the future. And if you pay tax at the higher or additional rate you can claim back up to a further 20% or 25% through your tax return.

If you’re UK resident under 75, you’ll be entitled to tax relief. You can usually add as much as you earn each tax year. There’s also an annual allowance (£40,000 for most people) which limits what you can pay in. Even non-earners can contribute up to £3,600 (so you pay £2,880, the government adds £720).

If your total income plus any pension contributions exceeds £150,000, or you have already taken money from a pension, your annual allowance could be much less than £40,000 – please read our annual allowance factsheet if you might be affected.

You can’t normally access money in a pension until age 55 (57 from 2028), when up to 25% is usually tax-free with the rest subject to income tax.

MORE ON TAX RELIEF

2. Losing any unused allowance from 2016/17

If you want to pay in more than £40,000, this might be possible. You might be able to ‘carry forward’ unused annual allowance from the past three tax years. This means, including the current tax year, you could actually make a pension contribution of up to £160,000. But there are certain requirements to use this rule:

  1. You must earn at least the amount you wish to contribute in total this tax year (unless your employer is making the contribution).
  2. You must have been a member of a UK-registered pension scheme (this doesn’t include the State Pension) in each of the tax years from which you wish to carry forward.

5 April is your last chance to carry forward any unused allowance from the 2016/17 tax year. After this date the allowance for that year will be lost forever.

MORE ABOUT CARRY FORWARD

3. Leaving your pension contribution until the last minute

To make a pension contribution this tax year you’ll need to make a payment by Sunday 5 April.

We know that these things often get left to the last minute – that’s why our phone lines will be open on that day until 11:59pm – but you should try and make a payment before this.

Usually you can make a payment to your pension in minutes but there can be issues outside our control. For example, your bank might need you to authorise a debit card payment (especially if it’s a larger sum) and their opening hours might not be as late as ours.

So, if you’re planning to make a payment this tax year and benefit from tax relief, make sure you leave enough time for any potential issues. It’s unlikely there will be any problems but it gives you a greater chance of securing your boost from the government.

A self-invested personal pension, or SIPP, is a type of pension that opens the doors, so you can choose your own investments from a large selection. SIPPs also make it easy for you to manage your pension.

MORE ON THE HL SIPP AND HOW TO CONTRIBUTE

Once you’ve read our key features and terms and conditions (including tariff of charges) the quickest way to open or top up a SIPP is online, or you can make a payment over the phone by calling 0117 980 9926 – just make sure you’ve got your debit card to hand.

4. Not making a payment if you don’t know where to invest

Just because you don’t know where to invest, it doesn’t mean you have to miss out on the benefits of tax relief.

You can make a payment to your pension before the deadline, and hold it as cash. Then when you’re ready you can choose your investments later on down the line.

Remember, all investments can go down as well as up in value, so you could get back less than you put in.

MORE PENSION MISTAKES TO AVOID

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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