Pension relief: use it or lose it

Following the government’s announcement that pension relief is to be reduced from April next year, ACCA (the Association of Chartered Certified Accountants) is reminding everyone that any unused relief from the past three years is still open to them.

Pension relief – the amount that can be paid into a pension fund in any single year tax free – is currently £40,000, but from April 2016 that will fall to £30,000 for everyone and even lower if you pay 45% income tax. However, what some people may not realise is that unused contributions from the last three years can be carried forward.

Chas Roy-Chowdhury, ACCA head of taxation, said: “£40,000 or even £30,000 may sound like a lot of money to pay into a pension fund but that includes both employer and employee contributions, and for anyone with more than one pension fund it is the total amount spread over the multiple schemes.

“It is very disappointing the government has chosen to reduce the amount people can save tax free for their retirement. It is another blow to creating a nation of savers – as the Chancellor and Prime Minister pledged to do after being elected in 2010. I would urge everyone that is able to use their full allowance every year, to check whether they have unused allowance from previous years. If you are unsure check with your pension provider, they will be happy to provide you with a statement of contributions for each year.

“Those hit hardest, again, will be those just entering the workplace. Not only will they have a reduced yearly allowance but also a reduced lifetime allowance. The government seems to be targeting younger workers and making it more difficult for them to save for their retirement. It may be a long way off for this group but they will undoubtedly feel the effects the most as they progress through their careers.”