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Your pension – is it working hard enough for your future?

Author: Tilney

Published: 28 Oct 2020

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When you are so busy looking after the finances of your clients, it can be hard to find time, or sometimes the inclination, to think about your own. Pensions, in particular, tend to get pushed to the bottom of the pile. But Tilney reminds us that time spent now could pay big dividends in the future, particularly with changes to pension tax relief on the cards again.

One of the many lessons of 2020 is that we should grab opportunities while they exist. If you put something off now, who knows if you’ll get the chance to do it in the future? This lesson very much applies to tax allowances too — use them or you could lose them. For higher-rate taxpayers especially this has never been more true. Of course, this isn’t exactly new news to you but when it comes to your pension, are you missing opportunities? Taking advantage of available allowances and investing them wisely is the foundation of your financial future.

In Tilney’s experience, many professionals are just too busy to find the time to dedicate to their pension. But the Government will soon need to pay the Covid-19 bill and today’s generous pension allowances may not last.

Could you be paying more into your pension?

Pensions come with formidable tax breaks. The threshold income for tapered allowances has increased considerably from £110,000 to £200,000. This, combined with the ability to carry forward allowances (which themselves might be tapered) means there are opportunities for large pension contributions.

On the other hand, if you’ve regularly paid pension contributions throughout your career, you may find that you are close to breaching the pension lifetime allowance — which now stands at £1.0731 million – meaning you would be facing a 55% tax charge on any withdrawals you make from pension savings above this amount. There are some ways to reduce this, such as taking the excess as an income or waiting to take your pension. This is a complex area and there is protection available – acting now will enable you to see how best to manage the lifetime allowance and what protection could be put in place.

As part of your wider plan, consideration should also be given to the Inheritance Tax benefits of pensions. This involves thinking about your pension as a potential means of intergenerational wealth rather than just retirement income which, in some cases, could be drawn elsewhere. It’s important to weigh up your lifetime income tax and lifetime allowance charge alongside the IHT impact of taking money out.

Pension investments matter

Often, people focus on the allowances alone, but the underlying investments in your pension are vitally important. Those that don’t choose where to invest often end up in their pension scheme’s default fund, which isn’t necessarily right for them. There are plenty of pension schemes offering funds with mediocre performance and, over time, risk profiles change so what was once right for you may not be in the future. Many people also have multiple pensions with investment strategies that contradict. Reviewing all your pension investments annually – and taking action where necessary – is an important piece of housekeeping and one that your future self is likely to thank you for. 

Make time for your pension

Whether you are planning for your retirement, are in the middle years of your career or have just taken a partnership we can help you. Don’t let 2020 pass by without making time for your pension. At Tilney we offer free consultations with a pension expert to give you the opportunity to review yours.

We all know that this pandemic has cost the Chancellor a huge amount of money, so it’s really important to use tax relief in case we don’t have it in the future.

Taina Moran, Financial Planning Director

About Tilney

Tilney is an award-winning financial planning and investment company that looks after more than £25 billion on behalf of our clients. At Tilney, your personal wealth is our personal responsibility.

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