Are you starting to think about retirement? Wondering if you have saved enough? Now is the time to start thinking about how your contributions can maximise your spending power in later life.
Pension tax relief is a powerful incentive that can potentially add thousands to retirement savings. Savers on the basic tax rate get a 20% increase in pension contributions, while those on the higher rate are in line for a 40% boost. These top ups are provided by HM Revenue and Customs (HMRC).
Over a lifetime of pension saving, retirement wealth will increase significantly – a phenomenon known as ‘investment compounding’. According to industry estimates, someone saving £200 a month over 40 years would be in line for retirement wealth of £395,400. Of this, 20% would be thanks to personal tax relief, based on an investment growth of 5% and an annual 2% increase in contributions.
While most pension schemes automatically add tax relief, it isn’t always that straightforward. Pension savers on a higher rate of tax could lose out when schemes only pay 20% tax relief and need to reclaim a rebate. Note that personal pension payments such as a Self-Invested Personal Pension (SIPP) are also only subject to 20% tax relief.
There are a few rules to note. The cap on pension tax relief is £60,000 per tax year, and savers are not allowed to pay in more than their annual income.
If you are retirement planning in Cheshire, assess your pension contributions now with the expert guidance of our team at Hartey Wealth Management.
