Airline pilots who earn over £100,000 will start to lose their personal allowance, at a rate of £1 for every £2 earned above £100,000. The personal allowance is the first part of your income which is tax free. Effectively this means once you start earning above £125,140, your personal allowance is completely eroded. This equates to a 60% equivalent tax rate on your income above the £100,00 threshold. Pension contributions are a great way of helping to restore your personal allowance that would otherwise be removed. For more information follow this link to my self-assessment article.

Pensions offer many advantages. The government gives you tax relief on pension contributions.  For example, higher rate taxpayers who make a pension contribution of £8000 get 20% tax relief which would be a contribution into their pension pots of £2000 from the government. They are entitled to claim back another £2000 on their tax return. Personal pension contributions increase your tax bands by the gross amount contributed which will reduce your tax bill.

Pension funds grow tax free and at retirement you can access some of your pension pot as tax free cash. Money still in your pension fund that has not been accessed is considered outside the estate when calculating Inheritance tax and is considered excluded property thus not accessible by creditors in event of bankruptcy (although the courts can recover 'excessive contributions' paid to a pension scheme prior to bankruptcy).

There are some disadvantages to pensions which make them not appropriate for everybody. For example, you cannot access your benefits until age 55 (unless terminally ill with life expectancy less than 12 months) which is increasing to 57 in 2028. There are strict limits as to how much you can contribute each year and during your lifetime.

To discuss your options please get in touch.

The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief is generally dependent on individual circumstances.