There are a few issues that we regularly see around the subject of tax on pensions:
Employees earning over £50,270 (the Higher Rate Tax threshold for 2022/23), sometimes think they will automatically obtain tax relief on their contributions when they pay into a pension scheme. But, to get higher rate tax relief (an extra 20%) you need to contact HMRC/complete a Self-Assessment Tax Return to claim the relief – otherwise you will be paying more tax than you should be.
Do you actually know how much you contribute into pensions?
If you are in a large organisation you may have a pension scheme that you take for granted. If this is you, do you know whether you and/or your employer make contributions? You should check this out and contact HMRC to avoid missing out on your tax relief.
Deferring state pension to receive a higher future pension or a lump sum
When you reach state pension age, if you don’t claim your pension, it will be automatically deferred. If you defer your state pension, you get a higher state pension when you start to claim it. If, however, you started deferring your state pension prior to April 2016, you would have had the option of receiving a lump sum rather than increased ongoing payments. In such circumstances, your lump sum will be taxed at the ‘marginal rate’ for that tax year (whether 0% if you don’t earn enough to pay tax; 20% for income up to the higher rate tax threshold (£50,270 in 2022/23) or 40% on income above that). This lump sum option is no longer available for people reaching state pension age later than April 2016.