Even if you’ve stopped working you can still make contributions into a pension and claim valuable tax relief of up to 45% until you reach the age of 75. There are strict allowances however, depending on your total income (which includes rental income, investment income, interest, etc.) and whether or not you are already drawing an income from your pension. Calculating your own contribution allowance can not only be difficult, but contributing too much will incur a tax charge instead of a relief.

Even then, if you can pay into your pension, whether you should will depend on your overall needs and objectives, and is a common area where Investec can give detailed and personalised advice.

If you’re married or in a civil partnership it makes sense to ensure you both utilise your personal allowances and tax bands. For instance, you can usually transfer assets between yourselves tax-free. Which means, if one of you is in a lower tax band, transferring investments or savings between you could reduce your combined tax bill.

And if one of you is a standard rate tax payer, and your spouse or civil partner isn’t, it may be possible to transfer up to £1,250 of personal allowance to the tax paying partner to set against their own liability, again reducing your overall tax bill.

Even if your partner is not earning, it may still be possible for them (or you, on their behalf) to contribute up to £3,600 pa (gross) into their pension and they will still receive tax relief of 20% on this contribution.

For most people, there’s no escaping tax in retirement. But, by utilising the allowances and reliefs available, it’s possible to significantly reduce, or even eliminate, future tax charges on your retirement income. To illustrate this, we’ve created a simple example that looks at a fictional couple’s pension assets, savings and investments to create a tax-free retirement income of over £50,000 pa.

Bill and Marjorie have accumulated pension assets of £1,000,000 and other tax efficient pots of £720,000 and are both eligible for the new State Pension.

_Assumptions

_{State pension allowance adjusted down from £9,109 for purposes of the example (**the new State Pension for men born after 6/4/1951 and women after 6/4/1953 is £175.18 pw from April 2020).}

_{State pension and pension income within personal allowances of £12,500.}

_{First £1,000 of savings income is tax-free for basic rate taxpayer.}

_{Bill ‘s Pension assumes 25% tax-free cash taken over 25 years and taxable income of £3,500.}

_{Marjorie’s Pension assumes 25% tax-free cash taken over 25 years and taxable income of £3,500.}

_{Investment income within £2,000 dividend allowance, capital within CGT allowance.}