What is the 2018/19 Pension Annual Allowance?
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.
You won’t have a salary in retirement, so putting away as much disposable income as you can, for as long as you can in a Pension could be a way to ensure you maintain your current lifestyle in retirement.
The Pension Annual Allowance is the amount you can invest into your Pension and claim tax relief on. In the 2018/19 tax year, tax relief can be claimed on up to 100% of your earnings or £40,000, whichever is the lower.
The benefit of contributing as much as you can towards the £40,000 pension annual allowance is that it is a tax efficient way to make your money do more. Rather than losing money to tax, you are putting it to work in your Pension investment. Using your full allowance, or as much of it as you can, is an effective way to make your money do more and build towards a pension pot big enough to retire on.
You can still pay in more, but this won’t be subject to the same tax relief. The annual allowance applies across all of the schemes you belong to, it’s not a ‘per scheme’ limit and includes all of the contributions that you or your employer pay or anyone else who pays on your behalf.
Be aware of how much you are contributing into your pension, as going beyond the annual pension allowance may result in a charge.
Based on the UK’s average salary of £27,000, many people won’t need to worry too much about the annual pension allowance. But no matter what your wage is, the same logic of investing as much as you can, for as long as you can, is applicable. Especially when you consider the tax relief element of investing into your pension, meaning that you are getting more value out of your money.
With this in mind, if you are in a position to use up your annual pension allowance, you’ll be making great use of the tax relief on offer and helping your money to do more.