Pension UK: Rishi Sunak could target pension allowances & tax relief – ‘use it or lose it’ | Personal Finance | Finance
Pension allowances and tax relief allow people to save efficiently towards their retirement. Britons are generally encouraged to put away their own funds for retirement, with the state pension viewed as supplementary to other income. Changes to the current system, however, could mean people are required to adjust their attitude to pension saving or change their financial habits.
“We now have a Lifetime Allowance at just over £1million, and the basic allowance that you can put into a pension is £40,000.
“So, given that the government has so much debt, this could be the year the Chancellor does get away with changing allowances and making them even tougher.”
It is not yet clear how the Chancellor will approach his upcoming Budget, but what is plain is he will have a lot to contend with.
Schemes such as SEISS, furlough and Bounce Back Loans remain of importance to those affected by the ongoing pandemic.
However, Britons are less likely to want levies to change such as Inheritance Tax, Capital Gains Tax or Income Tax.
Pensions can also fit into the category of equally important issues many will wish the Chancellor to address.
But it appears it is vital not to be passive about the issues which are currently in Britons’ control.
Mr Norton added: “The important advice we give around the tax-year end is to look at your allowances. It will be out with the old and in with the new allowances, and so it is important to consider this.
“Use your allowances now. Don’t wait until the end of March or the beginning of April. There is no point and there is no reason to wait – it really is use it or lose it.
“Whether that is £40,000 depending on your circumstances for a pension, £20,000 for your ISA, indeed £9,000 for a Junior ISA, get on and use it.”
There are some specific actions which can be taken when it comes to pension saving which can provide financial assistance, especially for those who have more money to spare this year.
Mr Norton said: “Looking at your availability in your pension and using ‘carry forward’ relief could be a very important step to take, and people should be getting on with this now.
“An individual can have an allowance of up to £40,000 that can be paid into a pension each year. Everyone has an allowance of £3,600 depending on your income, but it goes up to £40,000.
“If you have not used any of your allowance in one year, you can carry it forward for three tax years. There will be people who are sitting on a lot of cash and who didn’t contribute as much as they could’ve in previous years.
“People could be sitting on more cash now, for example, if they haven’t been spending as much during the pandemic. While higher rate tax relief is still available, you should think about using it.”
The Pensions Advisory Service explains the annual allowance applies across all of the schemes a person belongs to.
This will also include all contributions a person or their employer pays, or anyone who pays on an individual’s behalf.
However, Mr Norton once again drove the message home of using allowances, whether these do change in the future or not.
With the end of the tax year approaching in April 2021, current allowances will expire regardless of whether the Chancellor makes changes.
He concluded: “Many people are going to wait until the end of the tax year to use their contributions – in fact, it happens every year.
“There really isn’t any reason to wait at all, and my opinion would just be to get on with things.
“Historically, over time, markets go up and actually from a theoretical standpoint, you should be better placed in the market contributing to your pension or ISA now rather than waiting three months.”