Wealth Management

Boost your pension pot before tax-year end

Adrian Howard
May 14, 2024

Making tax-smart decisions in good time for tax-year end can make a real difference to the pension pot you have when you retire.

At a glance

  • Making full use of your tax allowances broadens your options and choices when planning and investing for your retirement.
  • Managing the assets you have today tax-efficiently will help you achieve the lifestyle you imagine in later life.
  • Using the full range of tax breaks available on ISAs, pensions, dividends and capital gains will help boost your pension pot, ready for your retirement.

Planning a tax-smart retirement

Some days you can’t imagine ever retiring. Other days, it can’t come soon enough. But there will be a day when you want to put work behind you, and live life differently. And a rewarding, comfortable retirement is something that takes careful financial planning.

These days, retirement planning is about making sure you’ve got plenty of options to live later-life the way you want to, not the way your retirement income means you have to.

That’s why it really pays to use your tax allowances and reliefs each year to boost your pension pot, as you get closer to that retirement party.

Buying yourself some choices

Retirement takes a lot of planning. Will you move houses, or move out to the country, even move out of the country altogether? “Saving enough in a tax-efficient way helps to buy you plenty of life choices” says Tony Clark, Senior Propositions Manager at St. James's Place.

“You want to look at pensions and ISAs, of course, as well as other products with varying degrees of risk and tax efficiencies.”

The first step is to take a good look at your current financial landscape, and make sure your money and assets are working as tax-efficiently as possible.

Feeling confident that you’ll be able to achieve the retirement you imagine is all about planning ahead to make sure you’ve got the retirement income to make it happen.

ISAs and pensions – the bedrock of retirement planning

You’ll almost certainly have ISAs and pensions as one of your main sources of income in retirement. Since both of them can help shelter you from tax on dividends, interest, and profits, using them well can help make your money go much further.

One of the best ways to boost your pension pot before tax-year end is to use your full pension annual allowance if you can. In 2022-23, this is still 100% of your salary or £40,000 – whichever is lower. If you can, use your full £20,000 tax-efficient ISA allowance, too.

The ISA annual allowance is a ‘use-it-or-lose-it’ allowance. But with pensions, you can carry forward any unused allowance from the last three years.

Using other allowances to boost your pension

The tax breaks don’t stop at pensions and ISAs. If you make a profit from selling assets outside your ISA or pension, the annual Capital Gains Tax (CGT) exemption is still £12,300. However, it is reducing to £6,000 in 2023/24 and again to £3,000 in the 2024/25 tax year. You can’t carry this allowance over so it’s another ‘use-it-or-lose-it’ tax break. Use the full allowance if you can.

If you’ve already used up your ISA allowance, there’s still the Personal Savings Allowance (PSA), which can help save tax. You can earn interest of up to £1,000 this tax year if you pay Income Tax at the basic rate. This drops to £500 per year for higher-rate taxpayers, and additional-rate taxpayers can’t claim at all.

Think about any dividends you earn, too. Dividends earned from investments held in ISAs and pensions are tax free. You can also earn up to £2,000 before you pay tax if the dividends are outside those wrappers.The dividend allowance is then dropping to £1,000 in the 2023/24 tax year and again to £500 in the 2024/25 tax year.

Despite numerous announcements and subsequent reversals, the dividend tax rates will remain unchanged between 2022/23 and 2023/24 tax years.

At the time of writing, the Dividend Tax for basic-rate taxpayers in 2022/23 will stay at 8.75% and for higher-rate taxpayers, it will be held at 33.75%. For additional-rate payers, it will remain at 39.35%.

Taking financial advice for your retirement planning

The turbulence of the past couple of years has made many people rethink their long-term life plans. In particular when they retire, and how they want to spend their retirement. Coming up to tax-year end is a good time to think about making any changes, according to Clark.

“There are lots of ways to achieve what you want, and an adviser will help you understand the most tax-efficient way of getting there, such as the decisions you need to make, the allowances you can use, and the best order in which to use them,” he says.

A financial adviser is there to keep on top of changes and give you a heads-up on the tax allowances that can help you achieve the future you imagine in later life.

The value of an investment with St. James's Place will be directly linked 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 and are generally dependent on individual circumstances.