Pensions update - 02/01/2018
Since 2012, employers have had a legal obligation to enrol their employees into a workplace pension. Everyone should ensure they are maximising their own pension allowances and that their pensions are working hard enough for them.
At present, every person in the UK can pay £3,600 into a pension whether or not they are working. Workers can contribute up to 100% of earnings or £40,000, whichever is lower. This automatically triggers an immediate 20% tax relief on the contribution, regardless of tax position: a payment of £2,880 into your pension fund turns into £3,600. For a higher rate taxpayer, further tax relief is available via the tax return.

What could this mean for you?

  • If you have missed a number of years’ contributions, it is possible to ‘mop’ these allowances up, providing you have sufficient earnings to do so in the year of contribution. For example, if you have unused allowances from previous years of £50,000 and funds available:
    • First maximise your contribution for the current year. This requires a contribution of £40,000, demanding earnings of at least £40,000.
    • To maximise the use of previous years’ allowances, current year earnings must be at least £90,000.
  • Pensions remain one of the most tax efficient investments you can make:
    • the tax relief creates an immediate 20% ‘growth’;
    • funds are protected from Inheritance Tax until age 75 regardless of whether or not benefits have been taken.
  • If you have a number of pensions with different providers, remember to keep track of how your funds are performing.
  • If your family claims Child Benefit, you should also read the following article.

For a number of years, we have been reviewing clients’ pension provisions and making recommendations with the aim of reducing charges and enhancing performance. Consolidating investment into one plan prior to retirement can also be beneficial: drawing benefits is simpler as there is only one provider to deal with.
If you would like to review your existing provision, please speak to your Ellacotts contact who will be able to help.

Using the latest technology, our App has been developed to provide you with useful tax tools and information via your mobile device. Available for iOS and Android mobile phones and devices.