Should I invest in a pension?

What tax relief do I get on a pension?

Whats the Pension Annual Allowance?

The topic of pensions can be very daunting and confusing. Whilst pensions may not be right for everyone, for most, they can be a very tax-efficient way of saving for the future, and not just for retirement. I will not cover pensions in their entirety as it is a vast subject and would require an entire book, but we can explore what a pension is by looking into some of the advantages and disadvantages of these contracts. 
As stated already a pension can be very tax efficient as a savings vehicle. Did you know that for every £1 you pay into a pension, the government will also add 25p equivalent to your basic rate tax of £1.25. This is automatically claimed and added to your pension by the pension provider. If you are a higher rate taxpayer, you can claim a further 20p tax relief and if you are an additional rate taxpayer, you can also get a further 5p via your tax returns each year. Because of these generous tax advantages, there are unfortunately limits to how much you can save in your pension. For most people, there is an annual limit of £40,000 or 100% of pensionable earnings, if you earn less than this. This is known as the annual allowance. Be careful though, for those earning over £200,000 per year your annual allowance could be reduced to as little as £4,000. Those with earnings below £3,600 per annum can pay £2,880 into a pension and still receive £720 from the government. Pension contributions made by a company or an employer can be in excess of your income-based annual allowance but must still be within the £40,000 per year annual allowance. Pension contributions made by an employer (including your own limited company) will not receive the same tax relief as mentioned above however, any contributions made to a pension by an employer will be classed as a business expense and the amounts exempt from corporation tax. This can be a very efficient way of remunerating yourself from your own company.
It’s worth noting here that you may be able to use up to 3 previous years unused annual allowances as long as you were a member of a pension during those years. However, if making these contributions personally, you do need to have the relevant pensionable income to receive the tax relief on them.
Once the money has been paid into a pension, it will grow tax-free until you decide to take your benefits. The tax benefits continue here as in most cases, when you do come to start drawing on your pensions, you will be able to take up to 25% completely tax-free with the remaining 75% used to provide a taxable income. There are also some advantages for pensions when it comes to death benefits but this is covered in a separate article found **here**
One downside to pensions is that once you have made the contribution, you will be unable to access the funds until 55 under current legislation, raising it to 57 in 2028.
However, some see this as a positive as it means that you can’t be tempted to access the funds in your younger years potentially ruining retirement provisions.
  • Could a pension be right for you, or possibly a none pension investment such as a Lifetime ISA or a simple ISA, or some combination of these?
  • How much can you save within the annual allowance and tax rules?
  • How much should you save to achieve your goals? and when you do save, what sort of assets, risk and portfolio is right for you?
All of these questions can be answered by engaging with Howard Wright to build your personal financial plan.

How can Howard Wright help me?
If you think you might be getting close to your annual allowance, that it could be reduced or you might have exceeded it, consider getting advice from a regulated financial adviser like ourselves at Howard Wright.

We can help you understand how much your annual allowance is including any unused amounts, whether you’ve exceeded your annual allowance, if there may be options to reduce any potential charge and look at your options for paying any tax charges that may be due.

Free Financial Review

Free Financial Review

To discuss your pension options completely free of charge, please contact Ashley Smith one of our Chartered Financial Planners at Howard Wright, you can call him on 0345 688 4939 or you can fill in our enquiry form below, it only takes 20 seconds to complete. We look forward to hearing from you and seeing how Ashley can help.


This article contains information from sources believed to be reliable but no guarantee, warranty, or representation, express or implied, is given as to its accuracy or completeness.  Howard Wright Ltd does not undertake any obligation to update or revise any future statements.  Past performance is not a reliable indicator of future results. Investments can go down as well as up and actual results could differ materially from those anticipated. This article is for information purposes only and has no regard to the specific investment objectives, financial situation or particular needs of any person as such, the information contained in this article is not intended to constitute, and should not be construed as, investment or financial advice.  Appropriate personalised advice should be taken before entering into any transactions.  No responsibility can be accepted for any loss arising from action taken or refrained from based on this publication.  Howard Wright Ltd is Authorised and regulated by the Financial Conduct Authority.  

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