Britons are being urged take full advantage of their tax allowances which could boost their pension pots by up to £180,000.
Pension savers can contribute up to £60,000 a year into their retirement plan every year which is known as the annual allowance.
Through carry forward rules, it is possible for someone to use any unused annual tax allowance from the last three tax year.
This is considered a particularly helpful savings tool for anyone who has came into a windfall such as an inheritance.
The annual allowance for the last tax year is £40,000
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With the allowance threshold being £60,000, this means an individual could put contribute a maximum of £180,000 before the end of the tax year on April 5.
Gary Smith, a partner in financial planning and retirement specialist at Evelyn Partners, noted that it is “more important than ever” for Britons to max out their tax allowances.
The retirement expert explained: “Note that the annual allowance was £40,000 until the current tax year.
“Still, that affords a maximum of £180,000 that can be paid into a pension in this tax year for those entitled to four years of the full annual allowance, and whose earnings allow it.
“But there are some rules and restrictions to note when considering carrying forward.”
Notably, savers must ensure they have first used up the current year’s allowance before using the carry forward rules.
Furthermore, Britons need to make sure that the payments made in any tax year do not go over the earnings for that year to get tax relief on pension contributions.
While people need to have had a pension in each of the three previous tax years, they do not need to have made any contributions and their new contributions do not need to paid in the same pension, according to Mr Smith.
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Carry forward rules allow people to save more than their annual allowance but certain rules apply
GETTYFinally, allowances from the “oldest year” are used up first and at the end of every tax year, the oldest year falls away.
This means that any allowances not used from the oldest year will be lost for good if they are not carried forward with this being the 2020/21 tax year.
Mr Smith added: “The ability to carry forward can be extremely useful for those looking to catch up on pension contributions because they want to give their pot a late boost before retirement, or because their financial position has improved and they want to take advantage of the tax reliefs on offer.
“It can be useful for those restricted by the tapered AA, especially if their earnings have suddenly increased and in previous years were below the threshold for the tapered allowance.
“But those who choose not to use up each year’s annual allowance as it arises should be wary of relying on carry forward too much, by assuming they can make up contributions at a later date. A bit like pensions tax relief itself, we don’t know how long carry forward will be around for.”
