Brought to you by
SUCCESSION WEALTH
Approaching your pension planning early in your working life could make a significant difference to how much money you eventually have later on. But if you have overlooked contributing towards a pension plan, or wish you had started to contribute in your 20’s or 30’s, what can you do to boost it?
No matter how old or young you are, now is a good time to secure a better retirement for yourself. Saving for your future should be a long-term goal. The sooner you start saving into a pension, the longer your money is invested and has the potential to grow. But for many people, pensions are not something they begin to really focus on until they enter their late-30s, 40s or beyond.
Workplace pension
Do you have a workplace pension? If so, could you be saving more into it?
If you are employed, are aged between 22 and state retirement age (currently 55 but increasing to 57 by 2028) and earn over £10,000 per year your employer is required to automatically enrol you into a pension scheme and make contributions to your pension. This only applies to companies that have “eligible jobholders”.
For those eligible jobholders, employers currently have to contribute a minimum of 3% of your qualifying earnings, additionally the Government also gives you a tax break on your contributions, known as “tax relief”.
Some employers will contribute an amount equal to what you contribute – known as matching.
This means that as you save, you’re receiving additional payments from your employer and support from the Government, none of which would be available if you were not paying into a pension plan, although tax relief may also be available for non-workplace pensions.
. (Image: .)
Big difference
If you can afford to, it’s worth considering paying in more than the minimum; saving as much as you can for as long as you can, could make a big difference to the lifestyle you would like and to what you can afford later in life.
Your employer may also offer you the chance to make pension payments through a salary-sacrifice scheme.
This is where you give up part of your pay, and in return your company puts the sum ‘sacrificed’ into your pension along with its own contribution to the scheme.
If you choose this option, bear in mind that reducing earnings via salary sacrifice can impact entitlement to income related employer and Government benefits and may not be appropriate for some individuals.
Other opportunities to increase you pension savings
Whenever a regular financial commitment comes to an end, you could contribute more into your pension – for example, if you pay off a loan or credit card, you could redirect this money to your pension instead. Even small increases like this could make a big difference over the long term.
A Lump sum
Whether you’ve just received a bonus or are approaching retirement, there are many reasons for paying a lump sum into your pension. You’ll receive pension tax relief on pension contributions up to 100% of your salary, and up to an annual threshold of £40,000 (all contributions, including those made an employer count towards this annual threshold) for the tax year 2022/23, known as the Annual Pension Allowance.
If you go over this amount you won’t receive tax relief on those contributions and will be charged tax at the highest rate you pay. For this reason, it’s a good idea to keep track of your pension contribution levels throughout the year.
If you receive an inheritance or are gifted some money, it could be worth transferring some of this to your pension if you can afford it. Tax relief means the money will be given an instant boost of at least 20%. If you are made redundant and given a cash lump sum, you could also put some of this into a pension.
Personal pension
If you don’t have a workplace pension, you may want to consider saving into a personal pension.
If you’re self-employed, you can pay into a private scheme. Whilst you won’t get the benefit of employer contributions, you will still benefit from tax relief, providing your contributions are within certain allowance limits:
1. The Annual pension allowance: This is the total amount that you, your employer and any third party can pay in across all your pension plans in a tax year and for 2022/23 is limited to £40,000.
2. The Tapered Annual Allowance: This impacts individuals with income of over £150,000 (including the value of any pension contributions), who save in a registered pension scheme. It restricts pensions tax relief by introducing a tapered reduction in the amount of the annual allowance to as low as £4,000. This reduced allowance could change year to year depending on your income.
3. The Money Purchase Annual Allowance: If you start to take money from a Defined Contribution Pension pot, the amount that can be contributed to your Defined Contribution Pensions while still getting tax relief on might reduce. This is known as the Money Purchase Annual Allowance or MPAA.
4. Lifetime Allowance: this is the limit on how much you can build up in pension benefits over your lifetime while still enjoying the full tax benefits, for 2022/23 that amount is £1,073,100.
Pension not looking as healthy as you would like
For people in their 20’s and 30’s planning for retirement is not something likely to be at the forefront of one’s mind. If your pension is not looking as healthy as you would like, whatever your age, as you head towards retirement, there are ways you can give it a boost.
-------------------------------------------
Please note: This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The content was accurate at the time of writing. Whilst information is considered to be true and correct at the date of publication, changes in circumstances, regulation and legislation after the time of publication may impact on the accuracy of the article.
This information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change and tax implications will be based on your individual circumstances.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules here