Many people will be saving into their pension for retirement, but there are rules associated with this. Bearing these rules in mind will prevent pension savers from receiving a nasty tax shock, so it is vital to take action.
Rob Morgan, chief investment analyst at Charles Stanley, stressed an important issue pension savers should consider going forward.
Chancellor Jeremy Hunt confirmed the pension Lifetime Allowance would be frozen for two more years.
This means it will be halted at its current level until 2027.
The amount investors can accumulate in their pension pots throughout their lifetime without being hit with a tax bill is key.
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As pension pots grow and benefits increase over time, Mr Morgan said it is crucial to ensure one does not “accidentally stray” above the threshold.
This can be done by monitoring one’s pension pot, and if necessary, using other savings vehicles – such as ISAs – to put money into.
The expert also issued an important warning as it relates to annual allowances.
He continued: “Meanwhile, the annual allowance refers to the £40,000 limit you can put in a pension each tax year, subject to earnings.
“There remains the opportunity to carry forward unused allowances from up to three previous tax years, subject to earnings, which can help maximise tax relief.
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Mr Morgan also analysed what the Autumn Statement is likely to mean for people in 2023 and beyond.
He added: “The Chancellor of the Exchequer, Jeremy Hunt, unveiled his Autumn Statement last month, aimed at balancing the nation’s finances while supporting households struggling with the unrelenting cost of living increases.
“Keen to demonstrate fiscal responsibility and to grapple with costly rising debt, the Chancellor focused on maintaining tax receipts and controlling spending while highlighting the importance of controlling inflation and keeping interest rates as low as possible.
“Dubbed by some a ‘Frozen Statement’, a range of tax allowances remain at current levels for longer.
“This means the effect of ‘fiscal drag’ as wage growth, inflation and investment and property gains put more people into higher tax brackets as time goes on. In addition, there were some cuts to tax allowances that will affect those taking income or realising gains from their investments.
“With inflation taking a huge bite out of spending power and a raft of stealth tax rises ahead, there has never been a better time to take a fresh look at your finances.”