Pension savers have been urged to look over their retirement pots ahead of the Autumn Budget. Chancellor Rachel Reeves could bring in key changes to pensions in her looming Autumn Budget.
Some experts have warned she could tighten the pension lump sum or even tweak the triple lock policy for the state pension. Whatever changes may lie ahead, experts at savings provider Plum have said now is a good time to review your pension pots.
Rajan Lakhani, personal finance expert and head of money with the group, said: “If you have a personal pension and are a higher-rate or additional-rate taxpayer, make sure you’re contributing as much money to your pension contributions as you can afford. You receive tax relief on what you pay in, and for some people, you might avoid moving into a higher tax threshold.
“With the Chancellor expected to freeze the tax bands again, that will be even more important.” Under current Government policy, income tax bands will stay at their current levels until April 2028.
The higher rate for income tax currently kicks in when your income reaches £50,271, and you move into the additional rate when you earn £125,140 or more. Another factor to consider if your income is in the higher rate is that once you earn £100,000 or more, you start to lose your £12,750 a year personal allowance.
You lose £1 for each £2 you earn above £100,000, meaning once your income reaches £125,140 or above, you get no personal allowance and pay income tax on all your income.
Claim back extra tax relief
Mr Lakhani said people on the higher rate may also want to fill in a HMRC form to claw back some tax. He said: “These higher taxpayers may also be able to claim back their extra tax relief from HMRC through a self-assessment form.
“Everyone gets 20 percent basic tax relief automatically added to their personal pension contributions. This means for every £80 you pay into your personal pension, you get £20 tax relief added automatically, meaning the total amount contributed is £100.
“But that means higher or additional rate taxpayers don’t have their total tax relief automatically added. So they need to claim back the extra from HMRC through self-assessment, otherwise they will miss out.”
You may also want to check how much state pension you are on track to receive. You typically need 35 years of National Insurance contributions to get the full new state pension, which currently pays £230.25 a week.
State pension rates increase each April, and are expected to rise 4.8 percent next year in line with the triple lock. The Chancellor usually confirms if the triple lock will apply for next year’s increase at the Autumn Budget.
Chancellor Rachel Reeves will present her Budget before the Commons on Wednesday, November 26.