Monthly Tax Idea – September 2011

Improving your pension provision – are you making the most of your tax relief?

In building up a pension two very issues are having a big impact. There’s the bad news of reduced investment returns and what in the real world is the good news of continually increasing life expectancy. However both of these are forcing many to have to put more into their pension fund to have a chance of securing their desired retirement income. 

In the current economic environment it’s vital to keep your level of pension funding under review.  The plus side of making pension payments is that the reduction to your tax bill when you make payments to provide for your pension is a very valuable tax relief. However, because the detailed rules for this tax relief have changed frequently many people have the false impression that the amounts they can pay and obtain full income tax relief are very restricted. 

The reality is that the current limits for tax relief allow most people to pay very large amounts with tax relief at their top rate of tax for the full amount of the payment. 

For everyone the starting point is that a minimum of £50,000 a year can be put into a pension fund. The amount can be higher if your actual or deemed premiums totalled less than £50k on average over the previous three years. The actuality is that the previous version of the pension tax relief rules meant that most people paid considerably less than £50k a year.

If you run your business through a company the amount your company can pay with full tax relief (and no taxable benefit on you) into a pension scheme may be much greater than these amounts.  This can be achieved by your company setting up a specific type of pension scheme. Our in house advisors Mazars Financial Planning can guide you through the process. There are many variations in the detail of pension schemes. This allows tailoring to your own requirements and circumstances. 

Although there are many competing priorities for a business' cash, for many building up a reasonable pension fund is a priority.  There is the opportunity to take action now.