Maximize contributions before April 2016

Maximize contributions before April 2016

Advisers whose higher-earning clients will be hit by annual allowance cuts from April 2016 should consider encouraging them to make larger contribitions now.

According to David Smith, director of financial planning for national firm Tilney Bestinvest, clients should make effective tax planning now to take full advantage of their pension contributions limits before the changes come into effect.

A single one-off pension contribution could be made to maximise the current annual allowance of up to £40,000, and a further contribution of up to £140,000 is also possible using carry forward, giving a maximum contribution of up to £180,000.

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Mr Smith added: “To truly maximise the tax efficiency of a personal contribution though, bonus sacrifice could be employed to not only obtain up to 45 per cent income tax relief, but also mitigate national insurance contributions on the amount sacrificed.

“For anyone likely to be affected by the tapered annual allowance, it is an absolute necessity that they consider making large single contributions now before it’s too late.”

Adviser view

Matt Phillips, managing director of City-based wealth manager Thomas Miller Investment, said: “For those who face lifetime allowance and annual allowance issues, the system is complicated. An increasing number of key decision-makers in businesses are being dis-incentivised through complexity to save through pensions.”