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Finance - kicking back against inflation
Kicking back against inflation
Stop price rises damaging your retirement spending power
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As inflation soars to its highest level in a decade, maximising your pension allowances becomes even more important for protecting your retirement income. Many people have been lucky enough to maintain income security and even save money during the pandemic, helping to top up their pension pot. The biggest threat to your retirement income is inflation, which may erode the value of your pension savings over the years. So it is important to understand how the price rises can have an impact on how much you save each year and on your spending power.
Be an early bird
The earlier you start saving into your pension, and the longer your money is invested, the more it has the potential to grow – thanks to compounding. This happens when your investments grow and then achieve additional growth on the new larger balance each year, increasing exponentially.
Grab current tax breaks
You get an automatic top-up for basic-rate tax relief with all personal pension contributions. The government pays that money directly into your plan, via your pension provider. If you’re a basicrate taxpayer and have £4,000 to invest in your pension, you’ll get £1,000 in tax relief on day one, bringing your total contribution up to £5,000. If you’re a higher or additional-rate taxpayer, you can claim even more tax relief via your annual tax return.
Carry it forward
You can invest as much as you like into your pension each year subject to an overall lifetime allowance limit of £1,073,100, but you currently only get tax relief on up to £40,000 of pension contributions in each tax year, or 100% of earnings if lower. You can also mop up previous years’ allowances, which means some individuals – such as the self-employed – can make a significantly larger pension contribution in a single tax year. Providing you have already maximised your current year’s allowance, you can carry forward any unused allowance from the past three tax years. That means you could add up to £160,000 to your pot, if you have the earnings to support that.
Paying in
Pensions tax relief on personal contributions is automatically paid at 20%, so if you’re a higherrate or additional rate taxpayer, you can claim the additional 20% or 25% in your self-assessment tax return. The further tax relief is paid to you by HMRC via a rebate on completion of your return. So, by paying more into a pension, you’ll pay less tax, leaving you even more to put towards your retirement.
Invest wisely
The assumptions you made when you first took out your pension – including inflation expectations – may not be the same today. Your portfolio of underlying investments may also have changed in nature. So, it’s worth getting good financial advice to make sure your investment strategy is still right for you.
The value of an investment with St. James's Place will be linked directly to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
For more information about wealth management and retirement planning, contact Robert Drake at Anglian Wealth Management on 01603 752500 / 07581 347559, or email robert.drake@sjpp.co.uk
The Partner Practice is an Appointed Representative of and represents only St. James's Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the Group’s wealth management products and services, more details of which are set out on the Group’s website www.sjp.co.uk/products. The ‘St. James's Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James's Place representatives.
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