Pension savers have been urged to act today to take advantage of tax relief which could add up to an extra £285,000 in their pots.
Higher and additional rate taxpayers have just a few hours to fill in a self assessment tax return, to secure tax relief on their pension contributions.
Those on the additional rate, who earn £125,140 or more, in particular stand to get huge benefits in tax relief. Calculations from wealth firm True Potential show a person on a £130,000 salary contributing 15 percent of their income into their pension can claim back £7,071 each year in tax relief.
This reduces their pension contribution cost from £15,600 to £8,529, a saving of over 45 percent. Over a five-year period, this adds up to £35,355 in savings.
If reinvested in a pension with a growth rate of seven percent, this could boost a pot by £286,958 after 30 years.
Higher rate taxpayers, those who earn above £50,270, can claim up to 40 percent in pension tax relief. This means a person on £60,000 who contributes 15 percent of their salary to their pension could claim back up to an additional £1,800 a year in tax relief.
This would reduce the cost of their pension contributions from £7,200 to £5,400, a 25 percent reduction.
Over five years, this would add up to £9,000 in savings. If a saver reinvested that £9,000 in stocks or shares or their pension with an assumed growth of seven percent, the value of these savings could be worth £73,048 after 30 years.
Neil Rayner, head of advice at True Potential, said: “Clever financial planning is pivotal, especially as we near the deadline for self assessment tax returns.
“This year, we’re emphasising the often overlooked yet substantial benefits of pension tax relief, particularly for higher and additional-rate taxpayers.
“Effective pension contributions can translate into significant tax savings, ultimately leading to a more secure financial future. We encourage individuals to not only meet their tax obligations on time but to also seize these opportunities to maximise their financial well-being.”
The deadline to file a self assessment tax return is today, January 31, at midnight.
Research from Phoenix Insights found the average person aged 45 to 54 has £88,000 in retirement savings, but they need six times this amount, around £530,000, for a comfortable retirement.
Patrick Thomson, head of research and policy at Phoenix Insights, said of middle aged Britons: “As a generation they have typically missed out on final salary pensions and also the introduction of a lifetime of workplace pension saving through auto enrolment.
“Our research shows some are looking to save more where they can, from spending less on holidays and luxuries items to renting out a spare room.
“But a significant group is still at risk of sleepwalking into retirement without sufficient savings to fund it.”
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