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Why starting early with your pension makes sense

15th May 2024
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As the saying goes, ‘the early bird catches the worm,’ and when it comes to pension planning, this adage couldn't be more accurate. One of the primary motivators for thinking about making pension contributions early in the tax year is the attraction of mitigating hefty tax bills, so this is something to be talking to your clients about now.

Elderly couple at home | R J M & Associates (Hampton) Ltd | Elderly couple at home using digital tablet stock photo

Frozen tax bands

With the freezing of Income Tax bands, a reduction in the Dividend Allowance and Capital Gains Tax allowance, more and more people are finding themselves unexpectedly pushed into higher tax brackets. However, by strategically planning pension contributions early in the tax year, it’s possible to effectively reduce their taxable income, thus minimizing their overall tax liability.

Compounding

Paying pension contributions early in the tax year means that you can benefit from being invested in the market for longer and benefit from the exponential growth potential afforded by time, through the power of compounding.

Tax relief

Moreover, the allure of higher rate tax relief on pension contributions serves as a compelling incentive for early action. By capitalising on tax relief available for higher rate taxpayers, individuals can increase their pension pots while simultaneously benefiting from tax savings—a win-win scenario for savvy investors looking to secure their financial future.

Preserving wealth for the next generation

Pension planning extends beyond mere tax mitigation—it's also a powerful tool for Inheritance Tax (IHT) planning. By structuring pension arrangements strategically, individuals can shield their hard-earned assets, ensuring that their wealth is preserved for future generations.

At Davenport Thomas we have a wealth of experience in helping clients plan for their financial security and peace of mind in their later years. So, for a discussion about how we can help you and your clients, you can book directly into Richard’s diary here, email us or call us.

 

[email protected]

Contact number – 0208 6182077

https://calendly.com/richard-dtapp

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. A pension is a long-term investment not normally accessible until 55 (57 from April 2028).