Focus on Pensions
For this Focus on Pensions piece, Rupert Lovesy (Castlefield’s Head of Client Engagement & Advice) outlines some important considerations to make the most of your pension.
Pensions – Still a Highly Tax-Efficient Way to Save
Surprisingly, the ability to contribute up to £60,000 or 100% of your total annual income from working to your pension to a pension and obtain tax relief remains unchanged after the Budget. Not only is the pension allowed to grow free of tax, but even basic rate tax relief means that your contributions are uplifted to 125% of what you put in. Higher and additional rate taxpayers will be able to reclaim further tax relief through their self-assessment tax return.
There was an announcement in the budget that pensions will be included in the value of a person’s estate for inheritance tax purposes from April 2027. However, this doesn’t affect them being used as a retirement planning tool and they remain a really tax-efficient way to save.
Now is a great time to consider topping up your pension for the current tax year, particularly as self-employed people will now be able to make a much better estimate of what they will earn in the tax year.
Salary Sacrifice – Could You Benefit?
Salary sacrifice schemes allow employees to accept lower take-home pay (and potentially pay less income tax) in exchange for other benefits, such as pension contributions, car and bike schemes or health insurance. They also offer a way for employers to offset some of the increasing costs by making a saving in employer National Insurance – they may even be willing to pass on the saving to the employee. However, it is important that the employees’ take-home pay does not then fall below the National Living Wage as this is not permitted.
The recent announcement in Rachel Reeves’ Budget of an increase in employer National Insurance contributions means employers may well be keen to set up or make more use of salary sacrifice schemes.
You can read more about salary sacrifice and pensions here:
Salary sacrifice and your pension | MoneyHelper
Finding Your Lost Pensions
There are around 3.3 million unclaimed pensions, worth an estimated £31.1 billion. What’s more, you have a 1 in 20 chance of being able to claim your share in this £31.1 billion fund – with odds like that, who wouldn’t want to check?
People move jobs, move house, lose paperwork, they die without their beneficiaries being aware of their financial arrangements or their pension providers are acquired by another company.
There are around 3.3 million unclaimed pensions, worth an estimated £31.1 billion
Pensions are even more likely to be forgotten about given that many now choose the more sustainable option of going “paper-free”. Not only that, but if they have been neglected, they could well be invested in funds that have been underperforming over an extended period or are a poor fit for your values. The sooner you take action, the more you could benefit.
If you know the provider’s name, you can get in touch with them directly, and if it’s in connection with employment, you could contact a former employer. If you are unsure how to make contact, then the Pension Tracing Service can help you find the appropriate details.
There is even a service called Gretel that will check every 14 days using your name, address and date of birth for matches without you even needing to know the providers or policy numbers.
Should you discover lost pensions, you may need to take further advice on whether they remain suitable for you or if they should be consolidated.
For further information, please use the following link to the Government’s Money Helper website: https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-problems/tracing-and-finding-lost-pensions
State Pension Top Up – Time is Running Out
Do you have the minimum 35 years of National Insurance contributions to be eligible for the full amount of state pension? You can buy extra years to boost the amount of state pension you will receive but will be limited to purchasing an additional 6 years of credits after 5 April 2025, so for those with significant gaps, it could be a good time to act.
You can buy extra years to boost the amount of state pension you will receive
As you don’t get any additional pension entitlement beyond 35 years of contributions, it’s important to consider whether you are likely to have sufficient contributions before you retire, even if you have previous gaps. This may not be the case if you have been eligible for tax credits due to sickness, unemployment raising a family or caring for elderly relatives.
You can check your state pension forecast here: Check your State Pension forecast - GOV.UK
It Pays to Take Advice
For many people, alongside the family home, their pension is one of their biggest assets so it makes sense to maximise its value and ensure it can see you through a comfortable retirement. If you have a Castlefield Adviser, now is a great time to get in touch to discuss any action you may wish to take. If you are not on a Castlefield Advised Service, why not give us a call to find out how we may be able to help you?
Written by Rupert Lovesy
References
https://nationalpensiontracingday.co.uk/
Check your State Pension forecast - GOV.UK
Salary sacrifice and your pension | MoneyHelper
Please note, the information in this article is based upon our understanding of the pension rules on 25.11.2024. This information is subject to change and should not be relied upon to make any investment decisions. This material may not be distributed, published or reproduced in whole or in part. With investment, capital is at risk.