Up to speed with pensions
‘All I know is I’ve put in an amount of money… but how they come to that figure, no idea.’
HMRC research into public understanding of pensions tax relief found considerable lack of awareness as to how tax and pensions fit together. Broadly, an individual is entitled to make pension contributions and receive tax relief on the higher of £3,600 or 100% of earnings in any given tax year – though tax relief is generally restricted for contributions above the annual allowance (£40,000). Higher earners may be impacted by the annual allowance taper, which can in some circumstances reduce the annual allowance to £4,000.
The maths underlying tax relief means that for every 60p saved by a higher rate taxpayer, the government adds 40p, a 66.6% contribution. For every 80p contributed by a basic rate taxpayer, the government adds 20p, a 25% contribution.
What HMRC’s research also pinpointed was ‘a clear appetite’ for more information to help taxpayers understand what they need to save to afford the retirement they envisage.
Pension provision needn’t be a closed book. As your accountants, we are ideally placed to advise on tax efficient planning for retirement. Do contact us for more information.