Tax year-end 2020/21: Give your pension plans a good workout

As we come to the end of an unforeseen financial year, it’s time to seize the moment and ensure your investment strategy is in the best shape possible. But how can you make your pension plans work smarter for you?


  • Maximise your pensions contributions today, with the power of compounding. Invest your money for longer and it will have all the more potential to grow.
  • You get an automatic top-up for basic rate tax relief with all personal pensions. If you’re a higher or additional rate taxpayer, you can also claim extra relief via your annual tax return.
  • In the current tax year, you get tax relief on up to £40,000 and can carry forward any unused allowance from the previous three tax years.

All change

Who could have predicted that the current tax year would round off such a tempestuous 12 months? On 5th April 2020, we were not even two weeks into the first UK national lockdown – and now our lives and the economy have changed beyond recognition.

Nobody truly knows what the long-term consequences will be in terms of taxation – however, one thing is sure, and that’s that the bill for the COVID-19 pandemic will unavoidably need to be settled at some point. The recent Budget has brought some clarity to the matter, but, ultimately, we have to press pause on any changes to the UK’s tax regime until economic recovery is in better shape.

The financial impact for those who have been fortunate enough to maintain income security during the pandemic is, however, looking more fruitful. The plus side of having to forego holidays, social events and weekend trips away amounts to more pennies in the bank – so why not reap the benefits and make your money work for you by topping up your pension pot?

It’s a no-brainer to take advantage of current tax breaks, as it could make a world of difference to the amount of income you have in the future. The Pensions and Lifetime Savings Association recommends that, to retire comfortably with, for example, three weeks’ holiday on the continent a year and a few theatre visits, an individual would need a minimum of £33,000 a year, and a couple would need £47,100, in terms of income from a pension.1

The question remains, however, as to how you can benefit from the tax allowances available to you while making sure your pension is working smartly to help you meet your retirement goals.

Seize the day

Depending on how old you are, retirement may seem a long way off, and so perhaps you’re in no immediate rush to start thinking about pension planning. However, the power of compounding means that the sooner you start saving into your pension and the longer your money is invested, the more potential it has to grow.

When you earn interest on an investment, and then additional interest on the new, larger balance over time, this leads to exponential growth – in other words, compounding.

Think smart

You get an automatic top-up for basic rate tax relief with all personal pension contributions. Your pension provider pays that money directly into your plan – so, if you’re a basic rate taxpayer and have a £4,000 lump sum to invest in your pension, you’ll get £1,000 in tax relief as of day one. That’s a rapid rise to your initial contribution!

If you’re a higher or additional rate taxpayer, you can currently claim extra tax relief via your annual tax return.

Don’t lose out

While you can choose how much you wish to invest into your pension, you currently only get tax relief on up to £40,000 of pension contributions within each tax year (or 100% of earnings if lower). If you’re a high earner, it may be less, depending on how much you earn.

For certain individuals, such as the self-employed who may have had a particularly positive year in terms of earnings, there’s a way to utilise previous years’ allowances, providing some with an opportunity to make a substantially larger pension contribution in a single tax year. If you have already maximised your allowance for the 2020/21 year, you can go back and carry forward any unused allowance from the last three tax years – if you have enough earnings to support it, you could possibly add up to £160,000 to your pot.

Why not top up your spouse’s pension, or pay into a child’s pension, if you have made the most of your allowances this year? Even if your spouse or child is a non-taxpayer, they will nevertheless benefit from basic rate tax relief on contributions up to £2,880 a year.

Relieve your tax bill

Pensions tax relief on personal contributions is automatically paid at 20%, so if you are a higher or additional rate taxpayer, you can claim the extra 20% or 25% in your Self Assessment tax return. Once you have completed your tax return, the further tax relief is paid to you as a cash sum. Therefore, if you pay more into a pension, you will pay less tax – leaving you with even more to invest in your retirement.

Manage your expectations

Your expectations when you first took out your pension may no longer add up, and your portfolio of underlying investments may have since changed. There’s therefore no time like the present to give your pension plans a good workout and ensure your investment strategy is in the best shape possible.

Here at Wellesley, it’s our job to give you dedicated and informed financial advice, tailored to you and your specific needs, so please don’t hesitate to get in touch on 01444 244551 before 5th April. In the meantime, take a look at our tax year-end checklist to kick-start your planning!

Five points for consideration:

  1. Start saving into a pension as soon as you can – every little counts.
  2. Aim to maximise your annual allowance, depending on your circumstances.
  3. Carry forward unused pension allowances, if your earnings support this.
  4. Pay into a pension to bring your taxable income down.
  5. Review your investments to see if they still meet your needs.


1 Retirement Living Standards, Picture Your Future, 2019

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 dependent on individual circumstances.

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