The same pension mistakes happen every March, with savers leaving contributions too late or missing allowances, according to financial experts. The tax year ends on April 5, and acting now could significantly boost retirement savings while reducing tax bills, said pension provider Penfold. Many savers do not realize how much money they are leaving behind, according to Chris Eastwood, CEO and co-founder of Penfold. Eastwood said the same mistakes are seen every year, most are easy to fix, but only if people act before the tax-year window closes. Failing to use the allowance means missing out on free money, experts said.
Most people can receive tax relief on pension contributions up to the amount they earn each year until age 75. However, a payment made on April 4 does not guarantee it will reach the pension provider before midnight on April 5. If a contribution arrives late, it counts towards the next tax year. Unused pension allowances from the previous three tax years can be carried forward, but after April 5, any unused allowance from the 2022 to 2023 tax year disappears permanently.
People earning more than £100,000 face an effective 60% tax rate on income between £100,000 and £125,140 due to the removal of the personal allowance. Pension contributions can reduce adjusted net income and restore lost personal allowance. Non-earning partners or children can receive pension contributions with tax relief up to £2,880, which HMRC tops up to £3,600. For example, a basic rate taxpayer contributing £800 receives a £200 tax top-up.
Many over-55s rush to take the full 25% tax-free lump sum as soon as they retire, according to new research. However, taking the full lump sum can deplete the pension pot too early if not carefully managed, said Catherine Foot, director of the Standard Life Centre for the Future of Retirement. Foot said this carries the risk of depleting the pension pot too early if not carefully managed. Two-thirds of over-55s feel confident about deciding when and how to take tax-free cash, but less confident about generating long-term income, the research found. Some retirees plan to reinvest the tax-free cash or use it to top up income while working part-time.