Pensions remain one of the most effective ways to save for retirement, thanks to the tax benefits that come with them. In the 2024/2025 tax year:
• You can benefit from income tax relief at your marginal rate on all personal contributions into a pension. Your annual allowance for the current tax year is the lower of £60,000 gross or your relevant earnings.
• The government automatically boosts personal pension contributions with 20% tax relief for basic rate taxpayers. This means that for every £80 you contribute, the government adds £20, making it a total of £100 in your pension.
• Higher rate taxpayers (40%) can claim an additional 20% through self-assessment or by contacting HMRC directly, while top rate taxpayers (45%) can claim an extra 25%.
• If you have not used your full pension allowance in the past three tax years, you can carry forward any unused portion and contribute more this year.
• Contributions into a workplace pension might be taken from pre-tax income, meaning you also save on National Insurance.
• It is worth reviewing your state pension record and making voluntary National Insurance contributions to fill any gaps, ensuring you qualify for the full pension amount.
ISAs (Individual Savings Accounts) offer another tax-efficient way to grow your retirement savings:
• The annual ISA allowance for 2024/2025 is £20,000, which can be split across different types of ISAs, including cash ISAs, Stocks & Shares ISAs, and Lifetime ISAs (LISAs).
• ISA withdrawals are tax-free, making them an excellent complement to a pension when planning for retirement.
• You cannot access your pension funds until age 55 (rising to 57 in 2028). After withdrawing your 25% tax-free lump sum, the rest will be taxed at your current income tax rate.
• Consider consolidating old workplace pensions to have better control over your retirement savings.
• The deadline for making the most of your tax allowances is 5th April 2025 - plan ahead to ensure you don’t miss out.
Maximising your pension and ISA allowances is a crucial step in assisting with retirement income. By taking advantage of available tax reliefs and ensuring tax efficient investment planning, you can build a stronger financial foundation for your future.
Take action now to ensure you’re making the most of your tax-efficient savings opportunities.
If you are looking for tailored financial advice on the best retirement strategy for you, then one of our advisers will be happy to speak to you.
Email us at info@thepennygroup.co.uk or give us a call on 0207 061 2345
An ISA is a medium to long term investment, which aims to increase the value of the money you invest for growth or income or both.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
Approved by The Openwork Partnership on 17/02/2025