Retirement planning at the end of the tax year

Using a pension wrapper to save tax, particularly at the end of the tax year, is an important part of any advisers remit when completing a client review.

Opportunities to save tax by making pension contributions have been around since the year dot but has it slipped as a priority?

Pension freedoms have invigorated the retirement planning market and eligible clients seem far more prepared to save for retirement than they may have done prior to the introduction of pension freedoms. 

1) Making use of carry forward 

Maximising tax relief for all ranges of tax payers has to be a worthwhile exercise but for higher and additional rate tax payers using all or as much of the available head room available makes good sense when it comes to tax planning. 

Using carry forward is an important facility and particularly this year because from 6 April 2017 we lose the 2013/14 £50,000 annual allowance.

So a quick reminder of the basic rules – for clients keen to reduce their tax bill by maximising pension contributions they can use the facility of carry forward providing:

• They have sufficient relevant UK earnings in the tax year to match the total contribution paid, assuming the contribution was personal rather than from an employer. 
• The individual was a member of a UK registered pension scheme during the tax years used to carry forward any unused allowance.
• They use all of the available annual allowance for the tax year in which the single contribution is made. (This is subject to the tapered annual allowance, covered later on in this article.
• They are not subject to the money purchase annual allowance. If the contribution is to a defined benefit arrangement this may still be possible. 
• Individuals must go back to the earliest of the previous three tax years and use all of the unused allowance first.
• An individual’s annual allowance will be reduced if they are a high earner (with adjusted income over £150,000) although carry forward is still available. 
• They are not subject to fixed or enhanced protection. 

A get out of jail card for high earners 

Clients whose adjusted income (which include earnings, interest payments and pension contributions, both employer and any personal contributions as part of a net pay arrangement) could potentially pay contributions up to £160,000.

That is £40,000 for the current tax year, £40,000 for 2015/16, £40,000 for 2014/15 and £50,000 for 2013/14, assuming no pension contributions were made in any of these tax years. Have you spotted an arithmetical error? Should the figure be £170,000?