The Benefits of pension planning - Why save into a pension?

Monday 11 March, 2024

Saving into a pension should be a main goal regardless of your age.

Investing into a pension is one of the best ways to save money for your retirement as pensions offer tax benefits.

The government (and your employer if you invest into a workplace pension scheme) will contribute to your pension scheme when you make a pension contribution. Saving into a pension is a very tax-efficient way of saving your money. 

How much tax relief will I receive?

Tax relief is provided based on the rate of income tax that you pay to the pension. Therefore, if you are a higher rate taxpayer, you will receive 40p for every 60p you invest into your pension. This means if you were to invest £60,000 into your pension, the government will add on a further £40,000 investment into your pension. 

The top earners will receive 45p from the government for every 55p they invest into their pension pot. Those who pay the basic tax rate will get 20p for every 80p invested (e.g £800 invested in, £200 put in on top by the government). These contributions from either the government or your employer will be free of capital gains tax and dividend tax.  However, The rate of tax relief given depends on the gross contribution being matched by income in that tax band, for example a higher rate taxpayer with income of £60,270 will get higher rate relief on £10k of gross contributions (i.e. matched by the income taxed at higher rate) but any contributions over this will just get basic rate relief.

Why take pension advice from an independent financial adviser 

Our financial advisers will review your pension contributions to ensure you achieve your retirement goals and manage your retirement income. Our Voyant cash flow model will consider any investments, savings, and pensions you have, so you will know how much of your money you will need to save for the future. 

If you are interested in finding out how much you need to save for your retirement, please contact your local Lonsdale Wealth Management independent financial adviser now by calling 01727 845500 or complete our booking consultation form or contact your local Lonsdale financial adviser in  Wimbledon, Barnet, Leeds / Bradford, Stafford, Ware, Chippenham, Ringwood, Harpenden, St Albans.

How much can I save into my pension while I am working?

Your annual pension allowance is the highest amount you, and others on your behalf such as your employer combined can invest into a private pension scheme every tax year without suffering a tax charge.  Last year in April 2023, the pension allowance increased from £40,000 to £60,000. This is on top of any unused allowances for the previous 3 tax years. You can still put in more than £60,000 into your pension, however, you will pay income tax on the excess amount over £60,000 (which can sometimes be paid out of your pension plan). 

Those who have a higher income will also benefit from these changes. Before April 2023, if you exceeded £240,000 earnings, total income from all sources plus employer pension contributions.  And threshold income (total income less pension contributions) had to be over £200,000, the most you could pay into your pension was £4000 a year. Since April 6th, 2023, this has increased from £4000 a year to £10,000. The threshold at which these changes apply has also increased to £260,000. 

Can I save into my pension pot once I have started accessing my pension? 

Once you have flexibly accessed a money purchase plan, your annual allowance for money purchase funding reduces (called the Money Purchase Annual Allowance). The Money Purchase Annual Allowance (MPAA) increased from £4000 to £10,000 from April 6th, 2023. 

How much will I receive in State Pension? 

The State Pension is a regular payment from the government that most people receive once they reach the State Pension age. The amount you will receive depends on your national insurance record, so everyone doesn't get the same amount. 

The State Pension is an important part of your retirement income. Your national insurance contributions include contributions you have made when you work and any other contributions that are credited to you when you are unable to work. Check when you will receive your state pension and how much you are likely to receive at  https://www.gov.uk/state-pension-age

How to pay voluntary contributions to receive a full state pension

If you don’t have enough qualifying years to get a full state pension, you can make up for this if you pay voluntary contributions which you can pay in for the previous six years, although there are currently longer deadlines in some cases.  Visit https://www.gov.uk/voluntary-national-insurance-contributions/deadlines  to find out more information. 

Jacob West, Financial Adviser in St Albans, Hertfordshire said:

‘It doesn’t matter what age you are our financial advisers can always assist you to save tax efficiently for your retirement. Having detailed cash flow modelling allows us to provide you with personalised pension advice. For example, we can review whether you should join your company’s workplace pension scheme. If you are self-employed, we can discuss your pension saving options. We can compare the advantages of saving into an ISA or into a pension, so you always save in the most tax efficient way. If you are close to retirement and you have several pensions, we can review their flexibility and charges. For example, how well diversified are your pension investments, do your pension schemes offer flexi-access drawdown and what is the charging structure on each pension pot. Having all this information allows us to offer personalised pension advice.’ 

Why use Lonsdale Wealth Management?

In 2021, Lonsdale Wealth Management won the Best Adviser firm for Vulnerable Client Care at the National Professional Adviser Awards. Furthermore, in 2022 and 2023 Lonsdale Services is listed in the FT Adviser Top 100 UK Financial Advisers. Our Lonsdale independent financial advisers offer pension advice in  Wimbledon, Barnet, Leeds / Bradford, Stafford, Ware, Chippenham, Ringwood, Harpenden, St Albans.

In Summary

Please contact your local Wealth Management financial adviser for pension planning advice so you make the most of your tax allowances and achieve your retirement goals.

Please note: The Financial Conduct Authority does not regulate tax planning or cash flow modelling.  The value of your investments can go down as well as up, so you could get back less than you invested. Past performance is not a reliable indicator of future performance. The information contained within this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.

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