Maximise pension contributions now, before budget day

With speculation surrounding the reduction of the annual pension allowance, those with money to put into a pension should consider doing so now.

If they wait until budget day, 21 March, to see whether the limit is reduced, they may not be able to take maximum advantage of the current allowances.

If the maximum allowance does get reduced in the budget, it is probable that contributions paid on or after budget day will be affected by the new reduced limit. So anyone wishing to invest needs to act now, before budget day, to be 100% sure of benefitting from the current £50,000 annual allowance.

Adrian Walker, Skandia's pension expert comments: "Slashing the annual allowance available on pensions is a real possibility. The government seem determined to find a way to increase the personal allowance to £10,000, and reducing the pension annual allowance will mainly affect those that are more affluent.

"Maximising all available allowances is certainly something everyone should do, especially those who pay tax at 40 and 50%, and they need to take action now, before budget day."

At present, if someone wants to maximise their pension allowance they need to fully invest in the current tax year, they can then go back and utilise any unused allowances from the previous three years. They can also invest early into the new tax year by closing the input period in the current tax year and opening a new input period for the next tax year ahead of 6 April.

The maximum annual allowance is currently £50,000, which means someone could contribute £250,000 by utilising all allowances in one go, provided the contribution does not exceed 100% of earnings. If the annual pension allowance is reduced, for example by £10,000, this could mean a 50% tax payer missing out on as much as £25,000 in tax relief.