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Pension Awareness Week: Is your pension working for you?

For many of our clients, one of the most important goals on their journey to financial freedom is the accumulation of a substantial pension fund.

Pensions provide a tax-efficient way of providing for your future income needs, so it’s essential to take control of yours as early as possible. Your aim should be to take decisive action towards securing a happy and financially comfortable retirement.

As part of Pension Awareness Week 2023, this article provides a summary of the latest pension updates and some important aspects to consider as part of your financial planning.

The Spring Budget 2023: opportunities for extra savings

In March this year, the ‘Budget for Growth’ set out some substantial updates for pensions. Chancellor Jeremy Hunt announced a significant increase in the annual pension contribution allowance from £40,000 to £60,000. This annual allowance represents the maximum amount of pension savings an individual can make each year (subject to earnings) without an annual allowance charge applying; the £20,000 increase could make a big difference to your future retirement.

Another significant change is that higher earners benefit from no annual allowance tapering up to an adjusted income of £260,000. There will be no lifetime allowance charge (the total amount of pension benefits you can build up in your lifetime) in tax year 2023/24, and it is to be abolished from 6 April 2024.

Savers will continue to benefit from uplifts on their own personal contributions in the form of a 20%, 40% or 45% tax relief, depending on their marginal rate of income tax, with the option to carry forward unused allowances from the previous three tax years.

Pension funds can also grow free of any income or capital gains tax within the pension wrapper. Our Spring Budget Summary, which detailed all the announcements and allowances, can be accessed here.

Managing your pensions

If you have lost access to one (or more) of your missing pension savings, tracking them down and consolidating them should be a top priority, otherwise some of your hard work and dedication throughout your working life has contributed to the £26.6bn pot of lost pensions.

Tracking down your pension plans can be time consuming, and you may be unclear on the charges, investment options, any valuable benefits, or retirement options that they offer. Over a matter of decades, a poorly managed pension portfolio could potentially cost you thousands, if not hundreds of thousands.

Understanding all your retirement options can feel overwhelming, but our advisers can review this information for you and help explain your current position.

Knowing how your pension is invested and whether it’s cost-effective will play a crucial part in understanding whether your money is working for you.

Looking after your pension

Remaining invested for the long-term remains essential. Investments within a pension pot grow free of income tax; when coupled with the upfront tax relief achievable in most instances, they hugely enhance the value of the savings you can access in the future. There are also many options as to how you can manage your pensions and the assets within them.

Whilst retirement planning has become increasingly complicated, we create specific wealth management strategies that match your individual aims, objectives and circumstances, that utilise not only a range of pension structures, but also makes use of other tax allowances such as building an ISA portfolio and general investment account which can accumulate over a period and is subject to the more advantageous capital gains tax regime.

You can typically take up to 25% of your pension pot free of income tax at normal retirement age, subject to lifetime allowance limits. This might allow you to perhaps pay off liabilities, offer a gift to family, or buy that sports car you’ve been working hard for!

When “pension freedoms” were introduced in 2015, they brought greater flexibility and choice to individuals and their families. We help our clients ensure that financial freedom is reached as early as possible. Our advisers can help you draw down pension income as and when required, ensuring you are maximising your allowances.

Fail to plan, plan to fail

It is important to ask the right questions as you plan for your retirement. What income will you need to generate from your pension to land a comfortable retirement? To charter a course towards your financial freedom in later life, it’s essential to know what your goals might be and the financial tools you have at your disposal now.

From there, partnering with our advisers acting as your co-pilot as early as possible offers you and your family the assurance that you will be able to reach your destination, whatever this might mean for you.

We’re here to help

The earlier you start planning for retirement, the better off you will be when you finally get there.

Seeking the right advice can help you achieve your financial goals and allow you to have the retirement you want and have worked hard for.

To check if you are making the best use of the improved rules on pensions this year, our advisers aim to offer you peace of mind by ensuring your affairs and investments are managed and planned in the best possible way.  Working together, we can help create a pensions strategy that works for you.

If you would like to know more about how our financial advisers can support you, please contact us on 020 7444 4030 or info@partnerswealthmanagement.co.uk.

Tax rules are subject to change and taxation will vary depending on individual circumstances. This article does not constitute advice or a recommendation; please consult a financial adviser. You should be aware that the value of investments may go up and down and you may receive back less than you invested originally.