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Act before the tax year end: taking advantage of the pension rules

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Pension providers are urging retirees to take advantage of the ‘carry forward’ rules ahead of the tax year end.

Financial advice group Tilney points out that investors have seen significant cuts to pension allowances in recent years, particularly for high earners. Those earning over £210,000 can now save just £10,000 a year into their scheme.

However, there are still some allowances available to them. In particular, they can ‘carry forward’ unused allowances from the three previous tax years. Investors should make use of any residual allowance from 2014/15 tax year before it is lost for good.

Andy James, head of retirement planning at Tilney, said: “Unlike ISAs which are an annual ‘use it or lose it’ allowance, under the current rules, savers can ‘carry forward’ unused pension allowance from the previous three tax years once they have first fully used the current year allowance. Allowances from the oldest year are used up first and at the end of every tax year, the ‘oldest year’ falls away. Therefore, any allowances not used from the oldest year – now 2014/15 – will be lost for good if they are not carried forward.”

However, he added that investors must have sufficient earnings in the current tax year to at least the value of the pension contribution for tax relief purposes on personal contributions.

There are also benefits for inheritance tax planning. James added: “Maximising a pension can potentially remove funds from your estate and gives options to leave it to your heirs in a very tax efficient way.”

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