Three ways to boost your retirement income as the new tax year begins

The new tax year is here and it’s a great time to start some habits that will boost your retirement income. You may be regretting not making the most of last year’s allowances, but they aren’t all ‘use it or lose it’. Some will enable you to take advantage of opportunities you may have missed in previous years. Here’s some you may want to think about.

Carry forward enables you to make use of unused pension annual allowances from the previous three tax years to turbo-charge your contribution. The annual allowance is the maximum you can contribute to your pension and still receive tax relief. It is usually set at whichever is the lower of £60,000 or your annual earnings. Making use of this year’s annual allowance plus anything unused from the past three tax years means you could potentially contribute up to £240,000 to your pension this tax year. The caveats are that you would need to earn at least this amount and you must have been a member of a pension scheme in the years you are looking to use carry forward.

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It’s important that you understand what your annual allowance is. If you are a very high earner, then you may be subject to the tapered annual allowance. This starts to impact people with an adjusted income of at least £260,000 and a threshold income of at least £200,000. If both of these are true, the standard annual allowance of £60,000 reduces by £1 for every £2 of adjusted income you have above £260,000. The minimum tapered annual allowance is £10,000. Put simply your adjusted income includes all pension contributions, including the employer’s. Threshold income excludes pension contributions.

If you have already flexibly accessed your defined contribution pension, then you will have triggered the Money Purchase Annual Allowance (MPAA), which will restrict you to contributions of £10,000 per year. If you have triggered the MPAA, you will be unable to use carry forward to contribute to a defined contribution scheme.

Tax relief is a great incentive, with the income tax you would have paid going into your pension instead. If you are a basic-rate taxpayer, then you should receive the right amount of tax relief automatically, but if you pay tax at a higher rate, then depending on what type of pension you have, you may need to claim some of it.

If you are in a salary sacrifice pension, or what is known as a ‘net pay arrangement’, then you should get the right amount of tax relief. This is because under net pay, your pension contribution is deducted from your salary before income tax is paid. This means you only pay tax on what is left, so will get full tax relief.

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However, if you contribute to a ‘relief at source’ arrangement, then contributions are deducted from your salary after tax. The employer takes 80% of the contribution from the employee’s salary and then reclaims the extra 20% from HMRC. This means if you are entitled to tax relief at a higher rate, you need to claim it, so check with your provider. Claims can be backdated for up to four years and can be done via self-assessment forms, online or via post.

This month, the state pension increases with a full new state pension hitting £241.30 per week. However, many people don’t get the full amount due to gaps in their National Insurance record. Generally speaking, you need at least ten years’ worth of contributions to get a state pension and 35 years’ worth to get the full amount.

If you get a state pension forecast and you have gaps from previous years, then you can do something about it. Some benefits, such as Child Benefit, come with a National Insurance credit, and so if you qualified for it but didn’t claim it during one of those gap years, then you may be able to backdate a claim and get the credits.

You may also be able to pay to fill the gaps – you can generally go back six tax years. However, check with the Future Pension Centre before you hand over any money. If you were ‘contracted out’ at any point in your career, you may find that any payment you make won’t boost your state pension. Contracting out enabled you to contract out of the state second pension in return for lower National Insurance contributions, or to pay them into a workplace or private pension. In some cases, it means that you can’t increase your state pension by making voluntary contributions.

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