How Beach helps use your previous 3 tax years’ pension allowance

Make the most of your previous 3 tax years’ allowance

Beach is a great option to help you save into a pension pot to make the most of your pension annual allowance for this current tax year, and the 3 previous tax years.

For most people, your annual pension allowance (how much you can save in total into your pension each tax year) is either your total eligible income (your UK earnings like a salary, not things like rental income), or £60,000, whichever is lower. A tax year runs from April 6th to April 5th the following year.

So, if you had a salary of £80,000 per tax year, you would only be able to save as much as £60,000 into your pensions. For instance, within a pension with work, and a personal pension, such as Beach. As a total.

If for instance you got a large bonus from work, and you wanted to put it into your pension (perhaps to reduce tax you’ll pay on your bonus), but the amount you want to pay in would put you above your current year’s allowance, you can use the previous year’s allowance, or if none left, any spare allowance from the last 3 years.

For instance, say you want to put £92,000 into your pension pot and you earned £120,000 this tax year, or more. Your pension annual allowance for this year is the £60,000 maximum, which also includes any money your employer has added.

Note: you can only add as much as your eligible earnings in the current year (relevant UK earnings such as a salary). For instance, you can’t add more than your current year earnings, even when using previous years’ allowances.

That’s £32,000 over this year’s allowance, so you’ll need to use the previous year’s allowance if you can, and if not, the next two years before that. So, let’s imagine you had ended up with £40,000 in your pension last year, you can simply add the money to your pension pot now, and you’ll only add £16,000 and automatically get a 25% bonus of £4,000 (20% tax relief from HMRC), and that will use your remaining allowance from last year. You’ll then put the remaining into your pension pot too (£16,000 and get a £4,000 bonus), and this will use your remaining balance of the year before.

And this continues for the year before, such as if you were paying more in, or had a different pension figure. You’ll need to run through the numbers for your own pension allowance to make sure things are right.

After that you’ll be able to claim 40% tax back (or 45%) from HMRC on the whole amount you add in too, providing you are eligible.

Note: in order to use your previous 3 years’ allowances, you’ll need to have had an eligible UK pension open during the year you want to use. And not have triggered the money purchase annual allowance (MPAA) by withdrawing money from your pension (otherwise your limit is £10,000).

Here’s what you need to consider:

1. Your earnings
2. How much your employer has contributed (this counts towards the £60,000 limit but not your personal limit if you earn less than £60,000)
3. The allowance for the previous years
4. The remaining allowance for the previous years

It’s worth noting the pension allowance changed from £40,000 to £60,000 from the tax year 2023/24 onwards.

The £60,000 also includes any pension contributions from your job, but you don’t count these when working out your personal annual allowance when using your earnings (for instance if you earn less than £60,000), so it could be £40,000 per year in earnings as your personal allowance, and then you can count your employer contributions to get to a total figure.

Note: tax treatment will depend on your personal circumstances, and this isn’t financial advice. This article doesn’t include every tax situation.

Reducing tax through pension contributions

By paying into a personal pension, such as with Beach, you can actually reduce how much tax you will ultimately end up paying each year in income tax. This is because the money you save into a personal pension goes in tax-free, meaning you get the tax back that you have paid on that money.

It sounds a bit complicated, but essentially you've paid or will pay tax on your salary (through your income). So when you put some of your salary into a personal pension it's refunded back to you as a cash bonus.

For 20% tax, you’ll get this back as a 25% bonus on your contributions when you add money. Beach will add this to your pension pot automatically after collecting it from HMRC. It usually arrives at the end of the following month.

If you pay 40% or 45% tax on your income, and are eligible, you’ll get the remaining 20% or 25% tax back as a refund from the government (HMRC), which you’ll need to claim for. As Beach is a digital pension provider (a mobile app) you’ll be able to see how much to claim back easily within the app, such as viewing your pension contributions for each tax year (April 6th to April 5th the following year). You’ll claim the tax back after the end of each tax year.

If you earn over £260,000 from all taxable income, the rules are a bit different, and typically your allowance reduces by £2 for every £1 you earn above that up until £360,000, at which point your annual allowance is £10,000 and remains at £10,000 for incomes above £360,000. Learn more about this on the GOV.UK website.

So, all you need to do is add money to your Beach pension, and you’ll typically be eligible for the tax back.

Technically speaking, this is called tax relief on your pension contributions. Saving more into your pension is a great way to reduce your overall tax bill. 

Your personal tax treatment may be different to the guide we have outlined here depending on your circumstances.

Beach pension pot

Beach offers a personal pension, which is a type of private pension, meaning it’s a pension in your name and is all yours, rather than the government pension, called the State Pension.

The word private pension is often used to mean personal pension, in reference to setting up the pension yourself, but technically speaking a pension that your work sets up for you (if you are employed) is also a type of private pension, called a workplace pension.

Personal pensions are a great way to boost your overall retirement savings, as you get to save into them tax-free, so your savings can grow much larger over time. And as the money in your pension grows in value over time, the money made is tax-free too. There may be tax to pay when you retire and withdraw from it, it depends on the tax rules at the time, and would apply to all pensions.

Claiming back 40% or 45% tax

With the Beach pension, you'll get a 25% bonus from the government straight into your pension pot, and Beach will arrange this automatically. This is to refund 20% tax paid on your income. The bonus will simply turn up in your pension pot at the end of the following month.

If you pay 40% or 45% tax, and if you are eligible, you can claim the difference back from the government (HMRC), which is either an additional 20% or 25% refund. You can apply for this directly with HMRC with their online pension tax relief tool, or through a self assessment tax return if you do one (such as if you are self employed).

Easy to use

We might be biased but we think Beach is one of the easiest options to save more for retirement and get that extra tax back. It’s all managed on a mobile app, and only takes a few minutes to set up. There’s no jargon, and everything is explained in an easy to understand way. There’s no complicated investments to choose from, there’s a single pension plan (investment) suitable for your age group.

Beach pension plan

The pension plan (investments within your pension) are tailored to your current age, so there’s no complicated investment decisions to make, and the pension plan will adjust over time with the aim of growing larger when you are younger (which can have bigger ups and downs) and then gradually reduce these ups and downs each year until you’re ready for retirement, at which point the goal is to provide a regular income.

Technically speaking, it adjusts the risk level, which is the mix between stocks and shares (also called equities) and things like bonds, which are essentially loans to governments and large companies who pay regular interest, and generally seen as safer investments. So if you’re younger, there will be a higher percentage of equities and when you’re older there will be a higher percentage of bonds.

The pension plan is managed by BlackRock, the largest investment company in the world (when measured by assets they manage). They also consider things like reducing climate change, so when saving with Beach your pension could have a more positive impact on the environment and the world in general (compared to pension options without this focus).

Top up when you like, or regularly

With Beach, you can set up a regular top up, for instance adding money each month, or you can add one-off top ups as and when you like, such as if you got a bonus from work and looking to reduce your tax bill.

Each year you can save as much as your total income each tax year, for instance if you earn £40,000 each year, you can save up to £40,000 into your pension each year. 

Note: you would add £32,000 to get £40,000 into your pension pot because of the 25% bonus added by Beach, which is 20% tax relief from the government.

There is also a legal limit of £60,000 per tax year, even if you earn over this amount. Having said that, you can use the previous 3 years tax year’s allowance if you haven’t used it all in that year, and had a pension open with any provider.

Saving regularly can mean your retirement savings build up steadily over time, and there’s no chance of forgetting to add money, but some people prefer to add an amount before the end of the tax year, or at the start of the new tax year, and again during certain times in the year, you can do any of these easily with Beach.

Adding money is easy to do, and it’s all sorted in a few taps by setting up a Direct Debit, or by sending money instantly via bank transfer directly to your pension pot.

Note: tax treatment will depend on your personal circumstances, and this isn’t financial advice. This article doesn’t include every tax situation.

Combine pensions

With Beach, you can combine old pensions too, so you can have all your retirement savings in one place, ready for when you retire. So if you have any old work pensions from previous jobs you can transfer those across to Beach, who will handle the whole process, you just need to add a few details within the app. There’s no phone calls or complicated paperwork to fill out, Beach is a digital pension provider, so it’s all managed in the app.

In the future, Beach is planning to offer a drawdown feature, so when you retire, you can still manage your pension with Beach. You’ll be able to withdraw money depending on your retirement plans and lifestyle, while your pension continues to grow within your Beach account.

Find lost pensions

Beach can also track down lost pensions, so even if you don’t know the pension provider or policy number, Beach can try and find them and then transfer them across to your Beach pension. Our team of handy pension detectives will get on the case, and give you regular updates as they go.

Excellent customer service

Beach is receiving great feedback on our customer service, with fast response times, and even offering WhatsApp support so you can chat away with us when you like, fitting customer support around your busy lifestyle and outside of your email inbox (we won’t be offended if you leave us on read!). There is also email support and you can send us a message in-app.

Download and start saving today

Dare we say we’re one of the most modern pension providers in the UK? Find out for yourself by downloading Beach from either the Apple App Store or Google Play Store.

It’s for anyone looking to save more for retirement, combine pensions, find lost pensions and save separately to a pension with an easy access pot suited for general life savings, invested sensibly by experts, and tax-free within an ISA.

Note: Retirement planning and tax treatment will depend on your personal circumstances, and this isn’t financial advice. This article doesn’t include every tax situation. For detailed advice tailored to your specific circumstances and needs, it is best to speak with a financial adviser.