5 tips to boost your pension this tax year

We’re just over a month into the new tax year, so it could be a good time to think about what you can do to boost your pension pot, to ensure you make the most of your pensions.

Recent research shows that many are not on track for a comfortable retirement. Indeed, it suggests that two-fifths of people in the UK aren’t on track for even a minimum lifestyle in retirement.

So what are the steps you can take to boost your pension? Read on, to find out how you can go about it.

Use your allowances

Each year, you can contribute up to 100% of your relevant earnings into your pension, up to the annual pension allowance of £60,000. You also get tax relief on your contributions, so if a basic rate taxpayer contributes £8,000, the government adds a £2,000 top-up into their pension pot. Higher rate taxpayers receive a 40% top-up and additional rate taxpayers get 45%.

If you have not fully used your allowances over the past three tax years, you can also carry forward the unused allowances and still claim tax relief on your contributions. This could really boost your pension pot.

You can usually use carry forward if you have used up your current annual allowance, were a member of a registered pension scheme during each tax year you want to carry forward and have not triggered the money purchase annual allowance (MPAA) by withdrawing monies flexibly from a defined contribution pension.

This could add serious amounts of money into your pension pot and will make a significant difference to how much you end up with in retirement.

Claim your tax relief

Most basic-rate taxpayer usually receive the right amount of tax relief automatically. However, if you are a higher or additional rate taxpayer, you will need to check, as tax relief on pension contributions may be given in two ways: “net pay” or “relief at source”.

In a net pay scheme, contributions are deducted from the employee’s gross salary (i.e. before tax has been deducted). The employee then pays tax only on salary “net” of (i.e. after deducting) the contributions. This means that the employee automatically receives tax relief at his or her highest rate of income tax.

However, many private pensions, like SIPPs and some workplace pensions, are set up under what’s known as relief at source arrangements. This is where contributions are deducted from your salary after tax.

The employer takes 80% of the contribution from the employee’s salary and then reclaims the extra 20% from HMRC.

This means if you’re entitled to tax relief at a higher or additional rate then you will need to reclaim the balance of your full tax relief, by completing a self-assessment tax return (or writing to HMRC).

If your pension is part of a salary sacrifice arrangement, you won’t need to reclaim extra relief.

So, it’s important to check what type of pension scheme you’re in to make sure you’re getting your full tax relief, as this could make a big difference to your final pension.

Increase your pension contributions

A recent survey highlighted in Money Week showed that one in five don’t know how much they and their employer pay into their pension each month. This figure rises to one-third amongst over-55s – the age group that is approaching retirement.

This follows on from an earlier survey from Scottish Widows that found a worrying proportion of adults in the UK don’t know how much money they will need in retirement.

A good starting point therefore is to take the time to find out what’s going into your pension monthly and then to review whether you can afford to increase the amount you are paying in. Even small increases over time can make a big difference.

Check your employer contributions

As well as your own pension contribution, it is worth seeing what your employer can offer you.

Many contribute at auto-enrolment minimum levels, but some may be willing to pay in more.

It’s possible that your employer may operate what is referred to as a matching contribution, where they will boost their contribution if you boost yours.

This can mean a lot more goes into your pension with only a relatively modest uplift from you.

Track down lost pensions

People have several jobs throughout their career, which means many could end up with multiple small pension pots. It’s easy to lose or forget about them, but if you don’t track them down, you could be missing out on thousands of pounds.

The simple way to find them is to use the government’s Pension Tracing Service.

Once you’ve found all your missing pension pots, it might make sense to consolidate them. It can make retirement planning a lot easier for you both now and when you come to retire.

However, you need to make sure that don’t incur any expensive exit fees or potentially miss out on valuable benefits such as guaranteed annuity rates by doing so.

It’s worth checking out our guide to pension consolidation to appreciate not just the obvious pros but also any potential cons.

The next step

If you would like to kickstart the new tax year by boosting your pension, or if you have any questions about whether pension consolidation could make sense for you, please do not hesitate to contact us.

We can work with you to help you understand how to get the most out of your pension contributions and how the decisions you make now could affect your retirement.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts. 

Workplace pensions are regulated by The Pension Regulator.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation, and regulation, which are subject to change in the future.