Mattioli Woods PLC - Financial Planning Newsletter

*Please note the above pension contribution allowances are based on the 2020/21 tax year rules and can change in future years. For some, pensions may seem ‘too complicated’, which can inevitably put them off saving for their retirement and, in turn, they seek to invest in other assets or even build up a cash pot for the future. However, the process does not need to be difficult or archaic as the concept is relatively simple – you put money into a savings pot for the future to be invested appropriately over the longer term, albeit this pot is governed by certain rules and regulations. In preparation for retirement the key is to put away a certain proportion of your salary each year over a long period of time to build up a substantial pot. So how much can you put into a pension? In short, there are no limits on the amount you can contribute to a pension each year. You can contribute as much as you like to top up your pension, be this by monthly contributions or as a one-off lump sum payment prior to 5 April each tax year. As always, though, there is a ‘however’! While there is no upper limit to the amount of pension contributions you can make, there is a maximum amount on which tax relief can be obtained and before tax charges may be levied. In addition, there may be provider restrictions and for contributions deducted from salary, certain employment law restrictions may apply. From a tax relievable perspective, when it comes to personal pension contributions, you can receive relief on the greater of £3,600 (gross) or 100% of your relevant UK earnings in each tax year. However, total pension contributions are also restricted to the annual allowance. The current Below are the relevant years and the standard annual allowance to which the carry forward rules would apply when a contribution is made in the 2021/22 tax year: · 2018/19 – £40,000 · 2019/20 – £40,000 · 2020/21 – £40,000 · 2021/22 – £40,000 Based on the above it is in fact possible for an individual to make or receive up to £160,000 of pension contributions (gross) in one tax year and for personal contributions to obtain full tax relief providing they have at least £160,000 (gross) of relevant UK earnings in the year in which the contributions are made. To add a slight layer of complexity, individuals who have flexibly accessed benefits (post aged 55 or under ill-health) will be limited in making/receiving pension contributions above £4,000 per tax year to defined contribution pensions. The remaining £36,000 of the standard annual allowance – called the standard annual allowance for pension contribution purposes is £40,000 (2021/22) and is essentially a restriction on the total amount of pension contributions that can be paid into a UK registered scheme within a tax year. There is however a way to contribute more than £40,000 in any one tax year without being penalised, and this is known as ‘carry forward’. The carry forward allowance effectively ensures that an individual can make more than £40,000 of pension contributions in any one tax year providing they were a member of a UK registered pension scheme in the relevant years preceding the tax year in which they make the pension contributions. This therefore enables the individual to utilise unused allowances from the three previous tax years to carry forward into the current year to make a pension contribution above £40,000. “alternative annual allowance” – can still be used to accrue benefits within a defined benefits pension scheme. In addition to this, higher earners may also be prevented in making the full annual allowance, which will depend on their ‘threshold’ income and ‘adjusted’ income. In short, once an individual receives a taxable annual income of more than £240,000 (from all sources) their contribution capacity will start to reduce by £1 for every £2 of earnings in excess, unless their threshold income is below £200,000. When their income reaches £312,000 or above, their contribution allowance for the tax year can be no more than £4,000 (gross) – these limits have increased from the 2019/20 tax year. Building blocks for pensions - now is the time by Kieran Mehngar 06 07 OF FACTS Did you know since we acquired The Geoffrey Bernstein portfolio in 2005 we have made 21 acquisitions? That equates to 1.3 every year! OF FACTS 2013 was a proud year for both Ian and Bob as Mattioli Woods was recognised as one of Leicestershire’s top 200 companies.