Ask the Expert: Should I put my savings into a private pension scheme?

Carl Lamb on whether you can claim self-employed benefits if you have a pension. Picture: Carl Lamb/

Carl Lamb on whether you can claim self-employed benefits if you have a pension. Picture: Carl Lamb/Getty Images - Credit: Carl Lamb/Getty Images

This week our reader wants to know if it's a good idea to put some funds into their private pension. 

Reader question: 

I’m in my mid-fifties and have started to think seriously about saving for my retirement.

I have a private pension fund as well as my work scheme. I earn about £55,000 a year so my work scheme is building up nicely – it’s worth about £58,000 at the moment – and my private pension is currently worth about £75,000.

I have about £45,000 of savings in cash ISAs and I’d like to make a really large contribution to my private scheme this year to give it a boost. Is that a good idea?


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Carl Lamb of Smith & Pinching responds:

Saving in a pension scheme is attractive because you can get tax relief on your contributions, which will significantly boost the value of your contribution.

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However, it is important to remember that pension savings cannot be accessed until you reach the minimum retirement age, currently age 55.

The amount you can put into your pension tax-efficiently in each tax year is subject to limits. Firstly, your own total tax-relievable personal contributions can’t exceed your earnings. Then your own and your employer’s contributions combined are limited by the annual allowance, usually £40,000.

The amount you can put into your private pension this year may be limited, when you take your workplace pension into consideration.

The good news is that it is possible to carry forward any unused annual allowance from the past three tax years, provided you use the current year’s allowance first, so there may be scope for you to make the large contribution you describe, although the amount you can contribute will be affected by your earnings and any contributions you and your employer have already made this year.

If you have insufficient unused allowance from previous years, you may need to phase the new contributions in over a couple of years.

The annual allowance is reduced to £4,000 per year when you start taking flexible benefits from your fund, so it’s important to recognise that if you need to dip into your fund for whatever reason while you’re still earning, your future contributions may be limited. It may, therefore, be worth considering retaining some of your ISA savings as emergency funds.

The Lifetime Allowance for pensions is the maximum you can hold in your pension savings without paying a punitive tax charge and currently stands at £1,073,100. It may look some way off your current pension savings, but please bear this in mind as you build your funds.

It is important to review your pension investments on a regular basis to ensure that they are suitable for you and that you are on track to achieve the lifestyle you want in retirement.

Any opinions expressed in this article do not constitute advice. The value of an investment and the income from it could go down as well as up.

The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

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