If you’re saving for retirement, there are various tax allowances you should be aware of.
Recent research by Brewin Dolphin found that UK adults believe a retirement income of £39,773 per year to be comfortable in their later years.
After the State Pension of £8,767 per year is factored in, this means you’ll need to top this up with an extra £31,006 per year to meet this ideal income target.
With annuity rates near historic lows, you’re looking for a total pension pot in the region of £600,000 to purchase a level of annuity that would produce this level of guaranteed income.
Plugging this gap presents a challenge for savers; which is why you want to make sure that you make the most of the various allowances on offer.
Pension contributions are well worth considering because of the generous tax breaks –contributions receive tax relief from the government at your highest marginal tax rate. For example, it would only cost a basic rate taxpayer £80 to contribute £100 into their pension because they would receive tax relief at 20%. This is added to the £80, representing the 20% tax they would have paid if they had earned that £100.
Regarding pensions, the annual allowance – the maximum amount you can contribute into a pension each year and qualify for tax relief – is £40,000. This is dependent on your earnings and could be lower if you earn less – you cannot contribute more than you earn into a pension in any one year. The annual allowance is also reduced for higher earners.
If you are thinking about saving for retirement, you may want to cast your net wider than just pensions. ISAs can provide a useful retirement savings vehicle. You may well be using your full ISA allowance, but if you have not invested the full £20,000 you should consider doing so because any gains and income received will be tax free.
 Research conducted by Opinium Research amongst 5,000 UK adults between 30th August and 5th September 2018.
 Brewin Dolphin Family Wealth Report, November 2018
The value of investments can fall and you may get back less than you invested
Please note that this document was prepared as a general guide only and does not constitute tax or legal advice. While we believe it to be correct at the time of writing, Brewin Dolphin is not a tax adviser and tax law is subject to frequent change. Tax treatment depends on your individual circumstances; therefore you should not rely on this information without seeking professional advice from a qualified tax adviser.
The information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.
No investment is suitable in all cases and if you have any doubts as to an investment’s suitability then you should contact us.