Whether you’re looking to increase your contributions or make the most of government incentives, pensions offer unique advantages to help you achieve your long-term financial goals.
Why Pensions Are Still a Great Investment
Generous Tax Relief on Contributions
One of the biggest advantages of pensions is the tax relief available on contributions. Tax relief is given, based on the rate of Income Tax that you pay. If you make contributions yourself of through your employer, after tax, your contributions automatically receive an immediate boost of 20% tax relief from the Government. If you are a higher or additional rate taxpayer, you can claim the additional 20% or 25% via your tax return. So, for example, if you were a basic rate taxpayer making a contribution of £80, the government would add £20, making your total contribution £100.
There are other methods of making pension contributions through your workplace pension, in which you do not need to reclaim tax, using a method such as salary sacrifice, where pension contributions are deducted and paid by your employer before tax.[1]
The Annual Allowance
The Annual Allowance, which sets the limit on how much you can contribute tax-efficiently each tax year, remains at £60,000 (2024/25) for most individuals. This presents an excellent opportunity to build up your pension pot. If you haven’t used your full allowance in the last three tax years, the “carry forward” [3] rule allows you to make additional contributions and still claim tax relief. This is especially beneficial for those who’ve recently received a bonus or windfall.[2]
Lifetime Allowance Abolition
The Autumn Budget 2024 confirmed the abolition of the Lifetime Allowance (LTA) [4] from April 2024. Previously, pension savings above the LTA were subject to hefty tax charges. Now, there’s no limit on how much you can save into pensions without penalty, offering significant long-term benefits for higher earners and those with substantial pension pots.
Tax-Free Growth and Withdrawals
Pensions grow free of income tax and capital gains tax, ensuring your investments compound over time without erosion from taxes. Additionally, when you reach the normal minimum pension age (currently 55, increasing to 57 from 6 April 2028), up to 25% of your pension pot can be withdrawn tax-free, up to the Lump Sum Allowance (LSA) of £268,275, providing a valuable lump sum to support your financial goals.[5]
Employer Contributions
If you’re employed, don’t forget about employer contributions. These are effectively “free money” added to your pension pot and can significantly accelerate your savings. Many employers offer to match or exceed your contributions, so it’s worth contributing at least enough to maximise this benefit.[6]
Estate Planning Considerations
While pensions remain a highly tax-efficient savings option, it’s crucial to understand the implications of estate planning changes introduced in the Autumn Budget. From April 2027, unspent pension funds left on death may become subject to inheritance tax (IHT) as part of your estate. To navigate these changes effectively and ensure your financial legacy is protected, consulting with a professional is essential. Our dedicated Estate Planning team at Brunsdon Financial can provide tailored advice to help you review your pension and estate strategies, ensuring they align with your long-term goals.[7]
How to Maximise Your Pension Benefits
Here are practical steps to take advantage of the current pension landscape:
- Increase Your Contributions: Use the increased Annual Allowance and carry forward unused allowances to maximise your tax relief.
- Review Employer Contributions: Check if you’re contributing enough to benefit fully from employer matching schemes.
- Regular Portfolio Reviews: Ensure your pension investments align with your risk tolerance and retirement objectives.
Secure Your Financial Future
Pensions continue to offer unparalleled advantages for building wealth and securing your retirement. Whether you’re an employee, self-employed, or nearing retirement, now is the time to revisit your pension strategy and make the most of available tax reliefs.
Get in touch to speak to one of our advisers today for personalised advice on boosting your pension savings and achieving your long-term goals.
Let’s work together to make your retirement dreams a reality.
