Pension can be used to combat inflation and slash income tax – act as new tax year begins
Expert reveals tips on how to save for retirement
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Pension saving can be a challenge, however, it can also come with its benefits. Saving into a pension is often seen as key for preparing amply enough for retirement.
However, it can be tricky to sacrifice in the short-term in order to secure long-term benefits.
Pension saving could be sweetened by the idea of fighting against rising inflation set to hit Britons hard this year.
Recent data by the Office for National Statistics (ONS) has shown inflation has already soared to 6.2 percent.
It is not expected to stop any time soon, impacting the amount of income tax people pay as they are dragged over frozen thresholds.
Indeed, Britons will also have to reckon with a rise in National Insurance this year, which could put a squeeze on their pockets
With this tough financial climate, one expert has looked towards pensions as a potential solution.
Becky O’Connor, Head of Pensions and Savings at interactive investor, said: “Given high inflation and the increase to National Insurance, as well as wage rises taking more people over the frozen higher rate income tax thresholds, pensions and the tax relief and additional employer contributions they offer can be viewed in a new light.
“It could be a way of combatting inflation and reducing current income tax bills, as well as boosting future financial security.
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“As we go into the new tax year, it might be worth considering whether increasing pension contributions could be the best strategy for any extra cash you have.”
Today is the last day of the tax year, which means it is the last chance for Britons to make use of this year’s allowances.
In this sense, individuals should be aware of the rules surrounding their pension to ensure they are not in breach.
The annual allowance for pensions for most people is £40,000.
While there is no limit on how much a person can save into their pension, this is the limit for which full tax benefits can be enjoyed.
If a person exceeds this, the amount they do so by will be added to the rest of their taxable income for the tax year.
It will then be subject to income tax at the rate which applies to the saver.
In addition, there is the Lifetime Allowance, which puts a cap on the value of benefits built up across a person’s lifetime before a tax charge applies.
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It currently sits at £1,073,100, but Britons have been warned to pay attention, as this figure could be easier to exceed than perhaps thought.
Ms O’Connor added: “You can still pay more into a pension than the Lifetime Allowance and it still might be beneficial to do so despite the prospect of tax charges, depending on your circumstances.
“If you are in doubt about whether or how you might be affected by annual or lifetime allowance limits, speak to Pension Wise, the free Government pension advice service.”
Alternatively, Britons may wish to seek the help of a financial adviser to provide a more tailored approach.
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