How tax relief changes could affect your pension’s value

Figures recently published by The Telegraph† give a good insight into how a flat rate pension tax relief will affect the pension pot sizes (at retirement at 67) of various age and earning groups. An overview of these figures for a 40% tax payer and a 20% tax payer aged 25, 35, 45 and 55 is given below.

Let’s assume you contribute £250 each month to your pension, your contributions increase by 3% each year, and your pension pot grows 3.5% a year. How will a reduced pension tax relief affect your pension?

For 40% tax payers

I am a 25 year old who has just left university…
20% relief will see your pension value drop by £161,263.
25% relief will see your pension value drop by £129,010.
33% relief will see your pension value drop by £58,644.

I am a 35 year old in an established job…
20% relief will see your pension value drop by £93,718.
25% relief will see your pension value drop by £74,974.
33% relief will see your pension value drop by £34,079.

I am a 45 year old in a senior position…
20% relief will see your pension value drop by £49,156.
25% relief will see your pension value drop by £39,324.
33% relief will see your pension value drop by £17,875.

I am a 55 year old looking towards retirement…
20% relief will see your pension value drop by £20,461.
25% relief will see your pension value drop by £16,368.
33% relief will see your pension value drop by £7,440.

For 20% tax payers

I am a 25 year old who has just left university…
20% relief will see no change in your pension value.
25% relief will see your pension value increase by £32,253.
33% relief will see your pension value increase by £102,619.

I am a 35 year old in an established job…
20% relief will see no change in your pension value.
25% relief will see your pension value increase by £18,744.
33% relief will see your pension value increase by £59,639.

I am a 45 year old in a senior position…
20% relief will see no change in your pension value.
25% relief will see your pension value increase by £9,823.
33% relief will see your pension value increase by £31,281.

I am a 55 year old looking towards retirement…
20% relief will see no change in your pension value.
25% relief will see your pension value increase by £4,093.
33% relief will see your pension value increase by £8,928.

The Telegraph 29th January 2016

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