Home Finance Pension savers urged to read up on key allowance rule as they...

Pension savers urged to read up on key allowance rule as they could get 'higher return'

Pension savers have been urged to learn about a key allowance to get the most out of their pots.

Money expert Karen Barrett, from financial advice group Unbiased, said people may not be aware of the pensions annual allowance.

She told Express.co.uk: “It’s vital that you build a healthy pension pot to help you enjoy your retirement to the fullest without worrying about money.

“However, many people may be unaware of the annual pension allowance which allows you to contribute up to £60,000 (or 100 percent of your annual earnings) to your pension each year and benefit from tax relief.

“Paying into your pension regularly is always a good idea as you not only benefit from tax relief but also on potentially higher returns than a savings account.”

She urged people to get saving into their pension as soon as possible to get the most out of the compound interest as their pot grows over the years.

Ms Barrett added: “Using pension carry forward rules is also worth considering, as you can use any unused allowance from the last three tax years so that you can make the most of your pension.

“You should also regularly review your pension funds, performance and fees, and pension forecast to ensure you’re on track.”

The pensions lifetime allowance is being scrapped from April 6, with the start of the new tax year.

Income and lump sums from pensions valued above the LTA of £1,073,100 will instead be subject to income tax at the beneficiary’s marginal rate.

A pension saver recently contacted HMRC to ask how tax rules apply when taking a lump sum from a pension.

They asked over X: “If a 25 percent lump sum (tax free) is drawn down from a personal pension when eligible, does this contribute to your annual salary?

“For instance, if £25,000 is drawn down from private pension, does earning another £25,000 put you into the higher tax bracket.”

A representative of the tax authority said in reply: “No, the tax-free element is not included when calculating your taxable annual income.”

For the latest personal finance news, follow us on Twitter at @ExpressMoney_.


Please enter your comment!
Please enter your name here