“The new pension freedoms allow much greater flexibility in terms of how savers can take their money out but come with limits on how much they can put in, once they start to access your benefits,” says Mike Morrison, Head of Platform Marketing. “Even so, we can think of five ways in which people can contribute to their pension to either maximise tax relief on the amount they contribute or potentially lessen any tax hit once they start to access their funds and do so in an entirely legitimate manner.”
Contribution opportunity |
Potential benefit |
End the current pension input period now and start a new one that ends in the 2015-16 tax year. |
This means savers make contributions in both this and the next tax year, maximising reliefs. |
Make a contribution using carry-forward before accessing your pension benefits. |
This will maximise tax relief on contributions and enable you to make use of the £40,000 annual allowance (only £10,000 once benefits are taken). |
Pay in £10,000 and immediately take it out. |
This enables savers to benefit from tax reliefs and profit from the tax-free cash element. |
Keep making contributions even if you are over 75. |
Pension holders will not gain tax relief on these contributions but this could lessen any inheritance tax hit thanks to the new death benefits rules. |
If you are over 55 take some salary as a pension contribution. |
This avoids tax and national insurance and savers can then take out some cash tax-free (and without NI), although a so-called 'recycling' limit is just £7,500 a year applies from 6 April 2015 and tax charges above this threshold can be very high. |