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Time to top-up your pension pot

We are fast approaching the end of another tax year, 5 April 2022.

To benefit from tax relief for 2021-22 you will need to make any top-up payment on or before this date.

To help you reach a decision, we have summarised the present tax rules that set out how much you can pay into your fund and still claim tax relief on the contributions made:

Annual allowance

Most taxpayers can pay up to £40,000 a year into their pension schemes. However, this allowance may be reduced if you have a high income or if you have flexibly accessed your pension pot.

Three-year carry back

If you use all of your annual allowance for 2021-22, you might be able to carry over any annual allowance you did not use from the previous three tax years. Which means that for 2021-22 once the annual allowance is exhausted you could use unused allowances for 2018-19, 2019-20 and 2020-21.

What if you pay more than your annual allowance?

The short answer to this question is that you or your pension provider will have to pay tax.

Exceptionally, this would not apply in the year you retired due to ill health, or if you died…

What about your State Pension?

While you are considering your pensions’ funding, don’t forget that it is now possible to check your State Pension forecast online.

You can use this service to find out how much State Pension you could get, when you can get your pension, and how to increase your pension, if you can.

You will need to prove your identity by signing in via your Government Gateway.

To login go to https://www.gov.uk/check-state-pension

Planning note

For 2021-22, if you are obliged to defer contributions until after the end of this tax year, perhaps due to cash flow issues, don’t forget that any unused relief for the tax year 2018-19 will be lost under the three-year carry back rule. If feasible, you may want to consider going the extra mile to fund a top-up before 5 April 2022 to at least utilise your annual allowance for 2021-22 and any unused allowance for 2018-19.

Ultimately, the amount you can invest will depend on your personal financial circumstances and will be best discussed and agreed with your pension’s advisor.