Seven steps to make your pension more tax efficient

Review your contributions

If you’re contributing to a pension, how much are you paying in, and is this the correct amount when taking into consideration the various allowances available?

If you have valuable Lifetime allowance (LTA) protections, you might be better off not contributing at all. As pension rules are complex, if you’re in doubt, it’s worthwhile getting advice from a Barclays Wealth Planner before taking any action, especially if you have income of more than £200,000 a year.

Decide if you need to access your pension

Over £45 billion has been taken out of pensions since 2015, according to HMRC¹. Generally speaking, money in a pension is exempt from inheritance tax (IHT), so by taking it out of the pension and bringing it into your estate, you’re increasing the amount of your estate that’s subject to IHT.

If you’re planning to use pension money for a particular reason – an expenditure or gift, for example – then it may be more tax efficient to use money currently in your estate instead, reducing its size (and tax liability) in the process.

Check you aren’t overpaying tax on your pension income

HM Revenue & Customs has recorded that over £42 million was refunded to savers who had paid emergency tax on their first flexible withdrawals in the three months to December 2021 alone.

If you find you have overpaid tax, contact your tax adviser or visit the HMRC website to reclaim it.

Consider applying for individual protection 2016

Individual protection 2016 (IP16) provides a personal lifetime allowance to the lower of the value of your pension savings at 5 April 2016 and £1.25 million. You can only apply if your pension savings were worth more than £1 million on 5 April 2016.

You’re also able to continue contributing to a pension while holding IP16, although any excess of crystallised benefits above your individual protection figure will be subject to an LTA charge.

There’s no application deadline for IP16, but you’ll need to apply before you take your benefits, as you’ll need an HMRC reference number if you want to rely on the protection.

Consider applying for fixed protection 2016

Fixed protection 2016 (FP16) allows individuals to fix their Lifetime allowance at £1.25 million and no minimum pension value is required to apply. However, if you hold FP16, you’re only eligible if no further contributions can be made after 5 April 2016.

Again, there’s no application deadline for this protection, but you’ll need to apply before you take your benefits, as you’ll need an HMRC reference number if you want to rely on the protection.

However, it’s worth noting that if you've taken pension benefits on or after 6 April 2016, but before you register for FP16, you can apply to have the amount of LTA previously used up, recalculated. This would mean that a lower percentage of the LTA will have been used up, potentially leaving more available when taking future benefits.

Understand how your remaining pension fund will be taxed on death

Your age at death determines how your pension death benefits are taxed, with different rules for those aged 75 and above.

It’s important to review your pension death benefits and, where applicable, update the death benefit nomination/expression of wish forms for your pension schemes accordingly. The death benefits available from your pension schemes should be considered as part of your wider estate planning strategy.

Next steps

Advice from a Barclays Wealth Planner can help you and your family make the most of your pensions. Our Wealth Planners can discuss all of the above steps and can help you achieve your overall financial objectives.

Speak to your Wealth Manager or contact us if you would like to arrange a meeting with a Wealth Planner to discuss your options.

Your Wealth Planner can help you understand the effect of tax on your wealth and offer tax-efficient wrappers for your investments. They’ll be able to guide you towards making the right decision for your financial planning needs. Your planner can't offer tax advice – you should seek that independently. Please bear in mind that tax rules can change in future and their effects on you will depend on your individual circumstances.

Things to consider

The value of investments can fall as well as rise. You may get back less than you originally invested.