Three big pension questions you should ask your financial adviser
The dust has settled on the Spring Budget Statement, which came with the headlines of growth. In the statement the Chancellor announced a number of changes to pensions, many of which have significant impact on higher earners and tax payers.
If you haven’t found time to sit down with your financial adviser and discuss the implications of these changes for your pension, we think there are three big questions to ask.
Can I put more into my pension?
The short answer is yes. The pension annual allowance is the total amount you can save into your pension plans each year before you have to pay an additional tax charge. This allowance has been increased to £60,000 (up from £40,000) from April 2023.
In addition. the Government announced that it will abolish the lifetime allowance. As a result, from 6 April 2023 the lifetime allowance (LTA) charge would be removed. You can find the detailed proposed legislation for these changes in the Finance Bill. The lifetime allowance will be fully abolished from the 2024 to 2025 tax year, through a future Finance Bill. This means that from 6 April 2023 the current lifetime allowance framework remains in place and the lifetime allowance for 2023 to 2024 remains at £1,073,100. So now you can make pension contributions up to 100% of your yearly earnings or up to the annual allowance of £60,000, whichever is lower.
Can I reduce my tax by paying more into a pension?
Again, the short answer is yes, but the exact amounts very much depend on what you are earning.
If you’re a higher earner then you might have been impacted by an allowance known as the tapered annual allowance. From April 2023, the adjusted income level will increase from £240,000 to £260,000 and the minimum annual allowance that you can be tapered to will increase from £4,000 to £10,000.
The tapered allowance means that for every £2 your adjusted income goes over £260,000, your annual allowance for the current tax year reduces by £1 down to a minimum of £10,000.
Remember also if you earn above £100,000 you start to lose your personal allowance, and so a pension contribution could give you this back.
How can I use my pension to reduce my inheritance tax liability for my family?
When you die, any unspent money in your private pension pot can be passed on to one or more beneficiaries of your choice. Pension pots are not subject to inheritance tax when you die. If you die before the age of 75, the person(s) who inherit your pension pot can draw on the money as they wish, without paying any income tax either.
So in simple terms, if you can invest more into your pension pot, you will be ensuring your family inherit more of your wealth.
Inevitably we have simplified much of the complex arrangements around pensions here, and the best way to work out how to maximise your pension arrangements is to speak to an independent adviser about your own situation. Do get in touch if you earn over £100,000 and would like some advice on your pension arrangements.