The ability to carry forward pension allowances provides a great opportunity to reduce tax bills and save for retirement. And this might be particularly opportune this year as Chancellor Jeremy Hunt has made it clear that he is prepared to make some hard decisions in order to stabilise the public finances.
All this means that those who are in a position to do, and particularly higher earners, should consider maximising pension contributions in advance of any potential future changes.
While the annual pension allowance for most people is a gross amount of up to £40,000 meaning the net cost for a 40% taxpayer is just £24,000 those who have already maximised their current year’s allowance can also mop up any unutilised allowances for the three previous years.
But there are some rules to note when thinking about carrying forward:
The ability to carry forward can be extremely useful for those looking to catch up on pension contributions because they want to give their pot a late boost before retirement.
Carry forward has further benefits beyond retirement planning as maximising a pension can potentially remove funds from your estate for inheritance tax purposes and gives options to pass on wealth to your heirs in a very tax efficient way.
However, there are also potential pitfalls. With the pension lifetime allowance now set at £1,073,100 for the next few years, care needs to be taken to ensure that contributions and growth in your investments won’t take you over this limit, as you will be liable for a tax charge on the excess when benefits are taken.
Those earning between £125,140 and £150,000 will be paying the additional income tax rate of 45% from 6 April and this will translate into a greater tax relief boost on pension contributions, which might complicate decisions over carry forward.
I am an Independent Financial and Mortgage Adviser and have worked in Financial Services for over 12 years. During my career I gained experience in assisting both individual and corporate clients.…
