In the past few years there has been a large increase in the number of people exceeding the annual allowance for pension tax relief.
Between the 2012/13 and 2014/15 tax years, the number of people breaching the annual allowance increased by 79%. The limit dropped from £50,000 in 2012/13 when 3,900 people exceeded the limit, to £40,000 in 2014/15 when 7,000 breached the limit.
With the limit cut to as little as £10,000 a year for some higher earners from 2016/17 onwards, many will be looking at ways to make the most of their pension allowances.
Pension Carry Forward
Anyone whose adjusted income is over £150,000 will find that from 5th April 2017 their pension allowance could be as low as £10,000 a year. One lesser known rule can be used to provide a little extra tax relief for high earners before then though, which is that of pension carry forward. It could let you invest up to £130,000 more if done right.
Pension carry forward allows you to carry forward unused annual allowance from the previous three years. Criteria include:
- Not using your full allowance in any of the past three years
- Having a pension (excluding state) in each of the last three years
- Possessing earnings of at least the amount you want to contribute
The amount you can carry forward, access and that will be tax free will depend on your personal circumstances and finances.
Open a SIPP
A Self-Invested Personal Pension (SIPP) from Bestinvest is a great way to boost any retirement savings. Pensions earned from various jobs can all be consolidated into one place, with low fees for transferring across and to be managed by a team of experts if desired. Investments in a SIPP are free from income and capital gains tax. Plus, for higher earners who are also higher tax payers, they can claim back 20 to 25% extra compared to regular taxpayers.
Invest Elsewhere
Rather than be limited by some of the pension taxes, why not invest the money you’re saving for later life in other ways? From forex trading to buying gold, silver and other precious commodities, there are plenty of options. It could be in safe stocks, precious metals, property or any other market. Do plenty of research into what are the best investments for the specific amount of time you wish to invest your money.
Takeaway
If you’re a high earner then any of these above methods could increase your pension allowances, so decide which is best for you. Be sure to choose not only the most advantageous one, but also the one that best-fit your wealth building scenario.
Please note that as this article is for informational purposes only, we’d advise you to consult with trusted personal finance advisers regarding this matter.