The end of the tax year is creeping up fast - 5 April 2025 will be here before you know it. So now’s the perfect time to take action and give your pension a boost.
To make things a little easier, we’ve put together a simple checklist of four things to think about to help you make the most of your pension allowances before the new tax year kicks in on 6 April 2025.
1. Have you claimed all the tax relief you’re owed?
Most UK taxpayers can get tax relief on pension contributions up to £60,000 or 100% of your earnings (whichever is lower) for tax year 2024/25. This means that the government effectively adds money to your pension pot. Maximising this allowance could make a big difference to your pension pot over time.
Most basic rate taxpayers usually get a 25% tax top up automatically added to pension contributions and if you’re a PensionBee customer, we’ll claim this tax top up on your behalf and add it directly to your PensionBee plan. Higher or additional rate taxpayers can claim a further 25% and 31% respectively through a Self Assessment tax return.
2. Could you increase your contributions?
Even a small increase in your monthly contributions can add up over time and the tax perks make it even sweeter.
Here’s an example:
if you’re a basic rate taxpayer and you pay £100 a month into your pension (£1,200 a year), the government adds £25 for every £100 you put in meaning you get an extra £300 a year tax top up; and
if you bumped your contribution up to £120 a month, that’s an extra £360 a year!
You can try out the PensionBee Tax Relief Calculator to see how an increase in contributions and tax relief can help grow your pot.
3. Make sure you understand the annual allowance
The annual allowance is the amount you can put into your pension each year while still receiving tax relief. Currently, this limit is £60,000 or 100% of your ‘relevant earnings‘ - whichever is lower (2024/25). This means that the total of your employer contributions, personal contributions and tax relief can’t exceed these limits across the tax year.
If you save more than the annual allowance into your pension, you’ll have to pay an ‘annual allowance charge‘. This is a tax on the amount you go over by. If you’re a high earner, remember that the annual allowance starts to taper down if you earn more than £260,000. You can find out more on our Pensions Explained page.
It’s also worth noting that once you begin accessing your defined contribution pension flexibly, the Money Purchase Annual Allowance (MPAA) is activated and reduces your annual allowance. The MPAA is currently £10,000 for tax year 2024/25.
4. Consider using ‘carry forward’ for a lump sum contribution
Come into some extra cash - maybe from an inheritance, a bonus from your employer or a property sale? Maybe you’re set to exceed your annual pension contribution allowance for the current tax year? You could make a larger pension contribution by using the carry forward rule.
You can carry forward unused allowance from the previous three tax years - as long as you were a member of a registered pension scheme during those years. So if you haven’t maxed out your pension contributions over the last few years, you could potentially put in more than the annual allowance of £60,000 this tax year (2024/25) without facing a tax charge.
Getting your pension in shape before the tax year ends isn’t just about ticking a box - it’s about making sure you’re setting yourself up for a more comfortable future. Whether you increase your contributions, claim that extra tax relief, or take advantage of the allowances, a little action now could mean a big difference down the line.
So why not take 10 minutes this week to check in on your pension? Future you will be thankful! Thinking about making an extra contribution before the end of the tax year? Make sure you complete your contribution before Friday 4 April to ensure it counts towards the 2024/25 tax year.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
