We’ve reached the final day of our 7 New Year Money Tips. So let’s spend some time looking at pensions – and why it’s worth giving yours a little check-up.
Pension savings are untouchable until you’re 55 (this is rising to 57 in 2028), but they’re an extremely tax-efficient way of saving. Having a healthy pension could mean the difference between a happy retirement and a positively glorious one!
Three cheers for pensions
- The government will give you tax relief on your pension savings. Depending on how much you earn, this is currently between 20% and 45%. And, if you earn more than £150,000 a year, you’ll also get a £45 top-up for every £55 you put into your pension.
- If you have a workplace pension, your employer will be adding to your pension pot too. They must pay in at least 3% of your qualifying salary, although many will pay in more – with some companies offering to match your payments.
- When you come to take money out of your pension, 25% of it can be as a tax-free lump sum. That’s really useful if you want to free up some cash for home improvements, a holiday or even to help your children get on the property ladder.
What to watch out for
While all of this ‘free money’ is wonderful, you do need to be aware that there are some rules over how much you can put in and take out of your pension.
- For most people, the maximum you can put into your pension each year is £40,000. But if you earn £200,000 or more, this amount is lower due to ‘taper’ allowances which the government introduced in April 2016. These rules are complicated, but as an example, earn over £300,000 a year and you’ll only be able to pay £4,000 into your pension pot without having to pay tax.
- You’re only allowed to build up a maximum of £1,073,100 in your pension. If you have more than this at retirement, there will be tax penalties.
- When you access your pension, you can usually take 25% tax-free. Anything else you take out will be subject to income tax.
We hope you’ve enjoyed reading our 7 New Year Money Tips. If you have any questions about your finances or need help organising your pension, investments or savings, get in touch and we’ll be happy to help.
Disclaimer: This article does not constitute financial or other professional advice. You should consult a professional adviser if you require financial advice.