Husky Finance

How much should I pay into my pension? – Pension allowance

Determining how much to contribute to your pension is an important consideration for securing your financial future. The amount you can contribute to your pension while still receiving tax benefits is governed by the pension allowance. Let’s explore the pension allowance and understand how it affects your pension contributions.

What is the Pension Allowance? The pension allowance, also known as the annual allowance, is the maximum amount you can contribute to your pension each year while still receiving tax relief. It sets a limit on the total contributions you can make across all your pension schemes, including workplace pensions and personal pensions.

Current pension allowance limits: As of the 2023/2024 tax year in the UK, there are two main pension allowances to consider:
  1. Annual Allowance: The standard annual allowance is £60,000 for most individuals. This means you can contribute up to £60,000 in a tax year without incurring additional tax charges. However, if your income is over a certain threshold, the annual allowance may be tapered down.
  2. Money Purchase Annual Allowance (MPAA): If you have flexibly accessed your pension savings, the MPAA may apply. The MPAA is a reduced annual allowance of £10,000, limiting the amount you can contribute to your pension while still receiving tax benefits.

Note: It’s important to keep in mind that the pension allowance limits are subject to change, so it’s advisable to stay updated with the latest information from HM Revenue & Customs (HMRC) or consult a financial advisor.

Making the most of your pension allowance:

To maximise your pension contributions within the annual allowance, it’s essential to consider various factors, including your financial goals, income, and other sources of retirement savings. Here are a few tips:

  1. Take advantage of employer contributions: If you have a workplace pension scheme, ensure you contribute enough to benefit from any matching or additional contributions offered by your employer.
  2. Consider tax relief: Contributions to your pension benefit from tax relief, meaning you receive tax advantages on your contributions. Basic-rate taxpayers receive 20% tax relief, while higher and additional rate taxpayers can claim even more tax relief through their self-assessment tax returns.
  3. Utilise carry forward rules: The pension allowance can be carried forward for up to three previous tax years if you haven’t used the full allowance. This can be helpful if you have the financial means to make larger contributions or if your circumstances change.
  4. Seek professional advice: Pension planning can be complex, especially if you have multiple pensions or a higher income. Consulting a financial advisor can provide personalised guidance based on your specific circumstances and help you make informed decisions.

Remember, pension contributions are a long-term commitment, and it’s crucial to strike a balance between funding your pension and maintaining a comfortable lifestyle in the present. Taking advantage of your pension allowance and planning for your retirement can help provide financial security in the years to come.

Make use of your tax benefit

You can easily make extra pension contributions with the Husky for Everyone (H4E) app, a great way to make use of your tax relief before the end of the tax year.

If your employer is with Husky, you can download the Husky for Everyone app for Android or IOS to view how much annual allowance you have used and to contribute more into your pension. Please e-mail us to receive the code to link your workplace pension.

If your employer is not with Husky yet, you can refer your employer to Husky to take advantage of all the benefits. Contact us to know more.

Are you a director-only company?

For most sole directors, contributing from the Limited Company it’s also a great way to save for retirement. With your contributions coming from the limited company, you can class the contributions as business expenses which will reduce the amount of corporation tax you have to pay.

Do you need help setting up a scheme and making regular or one-off contributions? Have a look at our director-only offering.

Get more now. Have more later.

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