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4 top tips for last minute pension top ups

We’ve had a look at four top tips to make sure you don’t miss out 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 on 5 April, although there’s currently lots of market uncertainty, that doesn’t necessarily mean you should miss out on topping up your pension.

Since the coronavirus outbreak markets have seen some dramatic falls. But thankfully, for most people, pension investing is a long-term game so your pension should have time to recover.

If you don’t want to invest right now, but you want to secure your tax relief, you can still add money to your pension this tax year. You can then choose where to invest later on, when the time is right for you (there’s more about this in tip four). We offer four tips if you’re planning on making a last-minute pension contribution.

Remember, all investments fall as well as rise in value, so you could get back less than you invest. This article isn’t personal advice. If you’re unsure, please ask for advice.

1. Work out how much you can pay in

How much you can pay into a pension is different for most people and it’ll depend on your personal circumstances. You should work out how much you can afford to pay in, as well as ensuring you’re within your limits.

To receive tax relief, typically you can pay in as much as you earn, or £3,600, whichever is higher. There’s also a cap called the annual allowance (£40,000 for most people) which limits your contributions.

You’ll need to tread carefully if you’ve taken money from your pension already or if you’re a higher earner. If you’ve flexibly accessed your pension you’ll be limited to paying in up to £4,000 into money purchase pensions each tax year.

Your adjusted income is broadly your total taxable income, plus any pension contributions paid by your employer. If you’re a higher earner and your ‘adjusted income’ is over £150,000, you could be limited to paying in as little as £10,000. From next tax year, 6 April, those with an ‘adjusted income’ of more than £240,000 could have an annual allowance of as little as £4,000.


How much tax relief could you get?

If you’re a UK resident under 75, no matter how much tax you pay, the government will always add 20% in tax relief to your pension. This includes children and other non-taxpayers.

Let’s say you wanted to pay in £1,000 to your pension. You only need to pay in £800 and the government would pay the rest (£200). If you pay tax at a higher rate you can claim up to a further 25%.

Why not try our tax relief calculator to see how little a pension contribution could cost you?

Pension and tax rules can change and their benefits depend on your circumstances. Tax rates are different for Scottish taxpayers.

2. Watch your tax bands and reduce your tax liability

Higher and additional-rate taxpayers can make a pension contribution to reduce their 40% or 45% tax liability for this tax year by reclaiming extra relief through their tax return.

If you earn more than £100,000 your tax free personal allowance will be reduced by £1 for every £2 you earn over £100,000, which means you’re paying tax at an effective rate of 60% on your earnings between £100,000 and £125,000. But, if you put enough money into your pension to reduce your taxable income below £125,000 you can reclaim some or all of your personal allowance, meaning an effective tax relief rate of 60% on some or all of your contribution.

Remember different bands and rates apply to Scottish taxpayers.

3. Pay in as early as you can

Lots of pension providers can take contributions online or over the phone right up until 5 April, but that won’t be the case for all of them, particularly during the current circumstances.

If you are looking to contribute, you should check with your provider the latest time they’ll be able to accept a payment, but if you can make a payment before then you probably should.

If you have an HL SIPP, the quickest way you can make a payment is online. Once you have checked you are happy with the important information, you can normally make a payment in minutes but sometimes there can be issues outside of our control so you’ll need to plan in a little extra time. You should also check you have the cash available, it might mean that you have to move money from your savings account to a current account before you make a payment.

To give yourself enough time for any potential issues, you should make a payment as soon as possible. It’s unlikely there’ll be any problems but it gives you a greater chance of securing your boost from the government in time.

4. Secure your tax relief, invest later

The end of the tax year coincides with uncertain times for UK investors.

Money in your pension is locked away until you're 55 (57 from 2028). If you can’t access the money in your pension for a long time, you shouldn’t be thrown by the market storms.

If you’re closer to your retirement age, you might be more cautious.

Tax relief is likely to be more important than ever – after all it’s a way to boost your pension by at least 20%. To make sure you don’t miss out on tax relief you can pay into your pension and hold the money in cash until you feel ready to invest it. As long as you pay into your pension by 5 April, the contribution will count towards this year’s allowance. And if you're a UK resident under 75 you'll get tax relief.

More on pension tax relief

How to top up

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    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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