22 February 2016

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Five reasons to make pension contributions before 6 April 2016

At Carbon we’re not fans of sales techniques, but there really is a closing window for many individuals in terms of the ability to make pension contributions at a reasonable level.

There are several factors that mean that making a pension contribution now, before 6 April 2016, and probably, to be safe, before the Budget on 16 March, makes sense. Five of these factors are as follows:

  1. For high-earning individuals (those earning, although it’s an odd definition of earnings, over £150,000), the maximum tax-relievable pension contribution will reduce in the next tax year from £40,000 by £1 for every £2 that the individual earns over £150,000, down to a minimum allowance of £10,000. So make use of your £40,000 allowance while you still can.
  2. In this tax year, there is a chance to contribute up to £80,000 and not just £40,000, if you contributed £40,000 before 9 July. Take advantage of this ‘one-off’ quirk.
  3. The Lifetime Allowance reduces on 6 April from £1.25m to £1m, but there is the ability to retain the £1.25m, as long as you make no further pension contributions (or accrue no additional benefits in a final-salary-style scheme) after 5 April 2016. So top-up your pot and consider bringing down the shutters on pensions and electing for Fixed Protection 2016 to lock into the £1.25m Lifetime Allowance.
  4. If you have maximised your pension contribution for this tax year (up to the £40,000 or even £80,000) you can then go back three years and, as long as you have sufficient earnings in this tax year, use any pension allowance from those earlier years that you have not already used up. This can add a further £140,000. If you don’t use up your relief from three years ago, once we cross into the next tax year, it’s gone!
  5. Finally, while we are always at pains to avoid trying to guess the future, there are some clear signs that new pension rules could be announced in the Budget on 16 March. There are rumours of a new flat rate of tax relief on contributions (25%? 30%?) and a new maximum contribution amount of perhaps £25,000/£30,000. Any new rules may not be introduced straightaway, but there would likely be some transitional rules introduced on Budget day to stop individuals maximising contributions using the ‘old’ rules before the new more restrictive ones come in. In reality, who knows what will be announced on 16 March, but if you were considering making a pension contribution at some point over the coming months, make it now, before 16 March so that you know the limits and reliefs you will secure.

Pensions can be very tax-efficient, and are now much more flexible than they used to be, so consider making a contribution now while you still can!

If you would like to discuss your financial planning options, please contact us with any questions you might have. You can do this by calling our head office on 0131 220 0000, or by emailing us at or you can also follow us on Facebook, Twitter or LinkedIn.

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