On average, around 9% of people changed jobs each year between 2000 and 2018 (Office for National Statistics - “Analysis of job changers and stayers” April 2019). Even if you have not had many jobs, you may still have a number of different pensions and so it is important to make sure your pension savings don’t get left behind. It’s not always easy to keep track of a pension, especially if you’ve been in more than one scheme or have changed employer throughout your career. If you have lost track of a pension and cannot trace it, a potentially helpful contact is the Pension Tracing Service - this has a register of all workplace schemes. 
 

Take a closer look at pension statements

Each year, your pension provider should send you a statement showing the current value of your pension and a forecast of what it could be worth and subsequently what potential income it could produce when you reach your intended retirement age.

Don’t just file it away – take a closer look.
 
  • Does the projected value of your pension bear any relation to the amount you are aiming for or what you think you may require?
  • And how do you quantify the capital value required in order to produce your targeted amount of income?
  • How do you draw this income?
  • Do you purchase an annuity?
  • Do you go into drawdown?
  • What are the tax implications?
  • What action could you take to enhance its value – perhaps you may need to work longer or increase your contributions?
Sometimes, more answers can raise even more questions.


How much can you contribute?

At present, you can make a gross contribution of £3,600 or 100% of your earnings (whichever is larger) every year – this is limited to £40,000 but you can potentially carry forward unused allowance for up to three of the previous tax years depending on your UK taxable earnings in the current year (you will need to have been a member of a UK registered pension scheme in each of the years you want to carry forward). This allowance could also be tapered though if your annual earnings exceed £200,000.

Making a personal contribution will automatically attract basic rate tax relief (enhancing your payment by 20%) and if you are a higher or an additional rate taxpayer, further tax relief can be claimed via your self-assessment tax return (giving a total of 40% and 45% respectively). Your pension will also sit outside of your estate so it can prove to be very tax efficient from an inheritance viewpoint.

There is a Lifetime Allowance (LTA) calculated by adding together the value of all of your pensions combined (not including the state pension) and if this allowance is breached, there is an applicable tax charge – the current LTA for the tax year 2021/22 is £1,073,100 and is frozen at this limit until 2026.

It is also tax efficient for a company making pension contributions for their employees as this is a business expense and can therefore be deducted from the annual gross profits thus potentially making a corporation tax saving.


Consolidation of pensions?

If you do have more than one pension, it could be beneficial to consolidate them. Consolidating your pension savings could make it easier for you to monitor the performance of your pensions overall and could also reduce costs.

Do proceed with caution though and always remember to take expert advice, as once made, the decision to switch is irreversible and a wrong decision could be detrimental.

If you would like more information about any of the subjects raised in this article, please speak to your Dentons Wealth adviser.

 

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