As the end of the 2024-2025 tax year approaches, it's crucial for business owners, senior executives, and directors to review their pension strategies. Maximising pension allowances can lead to significant tax savings and improved retirement prospects. Here we will quickly explore the key considerations and recent developments in the UK pension landscape.
State Pension Increase
The state pension is set to rise by 4.1% from April 2025, thanks to the triple lock mechanism. This increase will bring the full new state pension to £230.25 per week (£11,973 annually) and the basic state pension to £176.45 per week (£9,175 annually). While this is good news for retirees, it's important to note that relying solely on the state pension may not provide sufficient income for a comfortable retirement.
Tax-Efficient Pension Contributions
Making pension contributions before the tax year end can be highly tax-efficient. Here's why:
Tax Relief: Contributions to pension schemes receive tax relief at your marginal rate. For higher and additional rate taxpayers, this can result in significant tax savings.
Reduced Income Tax: Pension contributions can lower your taxable income, potentially keeping you below higher tax thresholds.
National Insurance Savings: If made through salary sacrifice, pension contributions can also reduce your National Insurance contributions.
Annual Allowance Considerations
The annual allowance for pension contributions remains at £60,000 for the 2024-2025 tax year. However, high earners should be aware of the tapered annual allowance, which can reduce this amount to as low as £10,000 for those with adjusted income over £260,000.
Lifetime Allowance Changes
The lifetime allowance was effectively abolished in April 2024, but a cap on tax-free cash remains at £268,275. This change has made pensions more attractive for high earners and those with larger pension pots.
Pension Consolidation and Value for Money
The government's pensions review has emphasised the importance of consolidation in the Defined Contribution (DC) market. Business owners and executives should review their pension arrangements to ensure they're getting value for money and consider consolidating multiple pensions if appropriate.
Upcoming Legislative Changes
A new Pension Schemes Bill is expected in 2025, which may introduce a new value for money framework for DC schemes and measures around individual deferred pots and retirement income solutions. Staying informed about these changes will be crucial for making informed pension decisions.
Act Now to Secure Your Financial Future
As the tax year end approaches, it's vital to review your pension strategy and take advantage of available allowances. Failing to do so could result in missed opportunities for tax savings and reduced retirement income.
If you would like to discuss where you are at the moment or where you'd like to be with your retirement savings then phone me on 07713 651945 or email Gavin@purewealthmanagement.co.uk
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