Don’t miss out! The end of the current tax year is almost upon us, as IFGL Pensions Technical Services Manager, Steve Berridge (pictured), reminds us. In the following article Steve explains why now is a VERY good time to revisit the subject of pension contributions and why it is a good idea to make the best of the annual allowance for your clients.
With the end of the tax year fast approaching, financial advisers should be reminding clients to make the most of their pension annual allowance reminds IFGL Pensions Technical Services Manager, Steve Berridge. Contributions of up to £60,000 could benefit from valuable tax relief, but time is running out to act.
Why Pension Contributions Matter Now
The end of the current tax year is almost upon us, making this a great time to revisit pension contributions and why it is wise to take full advantage of the annual allowance for your clients.
Understanding the £60,000 Annual Allowance
Many people don’t realise that up to £60,000 can currently be paid into a pension during the tax year. In many cases, tax relief is also available on these contributions. For UK tax residents, making contributions is particularly beneficial. You can receive tax relief at your marginal rate of income tax, so if you are an additional rate taxpayer, this could be as much as 45%. This £60,000 annual allowance includes the total of all gross personal and employer contributions. Company contributions can also be Corporation Tax efficient.
Who Might Have a Reduced Allowance?
An individual’s annual allowance might be lower than £60,000 if:
- They have earned less than £60,000 in this tax year (in which case their annual allowance will be limited to 100% of their earnings).
- They are a high earner—those with threshold earnings over £200,000 per annum will have their annual allowance reduced by £1 for every £2 of adjusted income to a minimum of £10,000. This is known as the tapered annual allowance.
- They have already started to access a pension flexibly, triggering the Money Purchase Annual Allowance (MPAA) of £10,000.
- They are a non-earner, though even non-earners can save up to £3,600 gross into a pension each year and benefit from basic rate tax relief—a useful planning tool for spouses and children.
Tax Threshold Planning: A Smart Strategy
A second potential tax benefit applies to those close to or just above key tax thresholds—an issue affecting more people due to fiscal drag. For example, someone earning £55,000 in the current tax year will pay 40% tax on the highest £4,730 of those earnings. However, if they make a £4,730 pension contribution, they can avoid this higher tax rate and instead benefit from tax relief on the money invested in their pension.
Non-UK Tax Residents: What Are the Options?
Even those who are not UK tax residents can make contributions to a UK pension up to the annual allowance if their circumstances permit. While they may not receive UK tax relief on those contributions, they will still be investing in their future retirement pot.
The Power of Carry Forward Contributions
Another reason to act now is that individuals who have not used their full allowances in previous tax years can carry forward unused tax relief for up to three years. This means someone who has not made any contributions in the last three tax years could carry forward £40,000 for 2021/22 and 2022/23, plus £60,000 for 2023/24, in addition to the £60,000 available in the current tax year—making a total potential contribution of £200,000.
Some criteria apply when using carry forward relief, such as the need to have been a member of a relevant pension scheme and ensuring they have enough earned income in the current tax year to cover the full contribution. This is an area where advisers can add huge value for clients.
Future Uncertainty: Use It or Lose It
A final reason to consider making a last-minute contribution this tax year is the uncertainty around future pension tax legislation. The government has made changes in recent years, and there is no guarantee that the £60,000 allowance will remain in place. In other words—use it or risk losing it!
Pension Provider Deadlines: Don’t Leave It Too Late
If you plan to advise clients to make contributions within this 2024/25 tax year, be mindful of pension provider cut-off dates. For example, to ensure contributions are credited by 5 April 2025, IFGL Pensions requires a fully completed Contribution Declaration Form by Friday 21 March 2025, with payment received in the SIPP Bank Account no later than Friday 4 April 2025. Last-minute planning should not mean ‘last day of the tax year’!
About Steve Berridge
Steve has over 35 years’ experience in the financial services industry, most of it at Abbey Life (TUP’D to UISL and Capita in the late 2000s), before a contracting spell, specialising in complaint handling and back book remediation. Steve joined IFGL Pensions (formerly Sovereign Pensions Services Ltd) in September 2021 as Technical Services Manager and is currently completing his Level 4 Diploma in Regulated Financial Planning.
