Reasons to consider still paying into a Pension after retirement

Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.

Reasons to consider still paying into a Pension after retirement

Just because you’ve reached your retirement age, this does not mean that you must access your pension and can no longer add funds to it. In fact, there are benefits to continuing to pay into a pension once you’ve retired…

How long can you pay into a pension for tax relief

So long as you’re a resident of the UK who is under 75 years old, you can continue to pay into your pension and receive tax relief for doing so. This is the case whether you’ve decided to retire or if you’ve made the decision to continue to work.

The benefits to paying into a pension after retirement

There are many reasons why you should aim to continue paying into a pension even after you’ve retired.

For one, the government will automatically add 20% when you pay money into your pension. What’s more, pay either 40% or 45% tax and you will be able to claim back even more as a result of your tax return.

Take note as well that anything left in your pension can be passed on to loved ones when you die — sometimes even tax free — so you may feel encouraged to build as large a pot as possible.

Whichever way you view your pension, take note that you will have the freedom to access the money whenever you like once you’re over 55 years old — though this will rise to 57 years old from 2028. 25% of the money will often be provided to you tax free, with the rest taxed as income, though a restriction is that you will not be able to pay into the same private pension scheme that you are receiving your pension from.

The amount that you can pay into your pension once you’ve reached retirement age

How much you’re able to pay into your pension once you’re at retirement age will depend on your state of employment and whether you’ve already accessed your pension or not.

If you’re still working and haven’t flexibly accessed your pension

Be aware that flexibly accessing your pension involves you either taking a lump sum from your pot, taking income from a flexible drawdown account or being in flexible drawdown prior to April 2015. It does not include taking your tax-free money from drawdown or purchasing an annuity though.

Often when you haven’t flexibly accessed your pension and you’re still in employment, you will be able to invest up to 100% of your earnings into a pension pot. For each tax year though, there will be an annual allowance of £40,000 to take note of.

If you’re still working and have flexibly accessed your pension

You’re still able to add money into your pension even when you’re still in employment and have taken income from a flexible drawdown account or received a lump sum that was partly taxable.

Due to the money purchase annual allowance (MPAA) though, contributions into money purchase pension schemes like self-invested and personal pensions are limited to £4,000 — a sum that will also include any contributions made by your employer.

If you’re a non-earner

When you’re a non-earner in retirement, you can contribute a maximum of £3,600 into your pension each tax year. However, tax relief means that the responsibility won’t be on you to pay the full amount.

This is because if you pay £2,880 into your pot in a given tax year, the government will add £720 automatically to bring the total up to the £3,600 limit.

Still have questions about your pension? Contact us and our expert in-house team will be waiting to answer any queries you may have regarding your pot.

With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Past performance is not a guide to future performance. Tax rules can change at any time. This blog is not personal financial advice.

Personal Finance