Retirement Planning Strategies 2021 - 2022

retirement planning v2

It is essential to ensure that you put aside sufficient funds during your working life to allow for a comfortable retirement in the future. You could spend a third of your life retired, so by taking action early, you can help to make this period as financially secure as possible.

Many options are open to retirees in regard to how they use their savings. It is important to seek appropriate advice on the options available to you. Here we outline some of the key areas to take into consideration when planning for your retirement years.

Tax and Financial Planning Strategies 2021-2022

Our latest Tax and Financial Planning Strategies 2020/21 website pages are designed to help you to make the most of your business and your personal finances by highlighting the main tax allowances and incentives and suggesting strategies that you might wish to incorporate into your own financial planning. For further information, please take a look at our other Tax and Financial Strategies 2021/22 website pages.

Tax and Financial Strategies 2021-2022 - an overview
Personal tax essentials 2021-2022
Business tax strategies 2021-2022
Tax and employment 2021-2022
Business exit strategies 2021-2022
Personal and family financial strategies 2021-2022
Savings and investment strategies 2021-2022
Tax-efficient estate planning2021-2022

If you would like to discuss the impact of changes in tax legislation on you and your business, please do not hesitate to get in touch with Tax Team at DRG Chartered Accountants. We would be very pleased to hear from you.

Initial considerations 

Your retirement planning strategy will be determined by a number of factors, including your age and the number of years before retirement. However, there are some other key issues to consider:

  • Do you have an employer pension scheme?
  • Are you self-employed?
  • How much can you invest for your retirement?
  • How much State Pension will you receive?

Individuals who reached State Pension age after 5 April 2016 receive a flat-rate pension, worth £179.60 per week where they have at least 35 years of national insurance contributions (NICs) or credits. 

Those who reached State Pension age before 6 April 2016 will continue to claim their basic State Pension (plus any additional state pension that they may be entitled to). The basic State Pension in 2021/22 is £137.60 a week. 

To receive a State Pension forecast you can phone the Future Pension Centre on 0800 731 0175. 

Employer pension schemes

There are two kinds of employer pension scheme into which you and your employer may make contributions. A defined contribution scheme pays a retirement income reflecting the amount invested and the underlying investment fund performance. A defined benefit scheme pays a retirement income related to your earnings: such schemes are very rare. However, in both cases, you will have access to tax-free cash as well as to the actual pension.

Pensions auto-enrolment

In order to encourage more people to save for their retirement, the government has introduced compulsory workplace pensions for eligible workers. Under auto-enrolment, all employers must automatically enrol all eligible workers into a qualifying pension scheme. From April 2019 there is generally a minimum overall contribution rate of 8% of each employee’s qualifying earnings, of which at least 3% must come from the employer. The balance is made up of employees’ contributions and associated tax relief.

Personal pension schemes

Relying on the State Pension will not be adequate for a comfortable retirement, so if you are not in a good employer scheme, you are advised to make your own arrangements.

To qualify for income tax relief, investments in personal pensions are limited to the greater of £3,600 and the amount of your UK relevant earnings, but subject also to the annual allowance. The annual allowance is £40,000, but this is tapered for individuals who have both threshold income (broadly net income plus any reductions in salary for salary sacrifice or flexible remuneration schemes less gross personal pension contributions) over £200,000 and adjusted income (broadly their income and employer’s pension contributions plus employee contributions via a net pay arrangement) over £240,000. For every £2 of adjusted income over £240,000, an individual’s annual allowance will be reduced by £1, down to a minimum of £4,000.

Where pension savings in any of the last three years’ pension input periods (PIPs) were less than the annual allowance, the ‘unused relief’ is brought forward, but you must have been a pension scheme member during a tax year to bring forward unused relief from that year. The unused relief for any particular year must be used within three years. 

Case Study

Ben has not made any contribution into his pension policy so far in 2021/22.

Ben has unused annual allowances of £30,000 from 2018/19, £5,000 from 2019/20 and £20,000 from 2020/21 (total £55,000). Ben’s income is less than £200,000.

Ben’s maximum pension investment is therefore set at £95,000 (£40,000 plus £55,000) for his 2021/22 PIP. He needs to make a pension contribution of £70,000 (current year allowance £40,000 and £30,000 unused relief from 2018/19) in order to avoid the loss of the relief brought forward from 2018/19.

If contributions are paid in excess of the annual allowance, a charge – the annual allowance charge – is payable. The effect of the annual allowance charge is to claw back all tax relief on premiums in excess of the maximum. Where the charge exceeds £2,000, arrangements can be made for the charge to be paid by the pension trustees and recovered by adjustment to policy benefits.

Tax relief on personal pensions

Premiums on personal pension policies are payable net of basic rate tax relief at source, with any appropriate higher or additional rate relief usually being claimed via the PAYE code or self assessment tax return.

Case Study

Louisa will earn £60,000 in 2021/22. She will invest £12,500 into her personal pension policy. She is entitled to the basic personal allowance and has no other income.

Louisa will pay her pension provider a premium, net of basic rate tax relief of £10,000. She is also entitled to higher rate tax relief on the gross premium, amounting to £2,500.

As Louisa is an employee, we can ask HMRC to give the relief through her PAYE code. Otherwise, we would claim in Louisa’s 2022 Tax Return. Thus the net cost to Louisa of a £12,500 contribution to her pension policy is just £7,500.


Scotland has income tax rates which are different from those that apply in the rest of the UK. Pension payments by Scottish taxpayers paying at the starter rate of 19% will be treated in the same way as 20% taxpayers in the rest of the UK. Scottish taxpayers who pay tax at 21%, 41% or 46% claim the difference between these rates and the basic rate of 20%. Contact us for specific advice.  

The lifetime allowance

Where total pension savings exceed the £1,073,100 lifetime allowance at retirement (and fixed, primary or enhanced protection is not available), a tax charge arises:

Tax charge
(excess paid as annuity)

Tax charge
(excess paid as lump sum)

25% on excess value, then up to 45% on annuity

55% on excess value

The lifetime allowance will increase each year in line with CPI.

Accessing your personal pension fund

Taxpayers have the option of taking a tax-free lump sum of 25% of the fund value and purchasing an annuity with the remaining fund, or opting for income drawdown which offers further flexibility in how the fund is used. 

An annuity is taxable income in the year of receipt. Similarly any monies received from the income drawdown fund are taxable income in the year of receipt.

Taxpayers have total freedom to access a pension fund from the age of 55. Access to the fund may be achieved in one of two ways:

  • Allocation of a pension fund (or part of a pension fund) into a 'flexi-access drawdown account' from which any amount can be taken, over whatever period the person decides
  • Taking a single or series of lump sums from a pension fund (known as an 'uncrystallised funds pension lump sum').

When an allocation of funds into a flexi-access account is made the member typically will have the opportunity of taking a tax-free lump sum from the fund.

The person will then decide how much or how little to take from the flexi-access account. Any amounts that are taken will count as taxable income in the year of receipt.

Access to some or all of a pension fund without first allocating to a flexi-access account can be achieved by taking an uncrystallised funds pension lump sum. The tax effect will be:

  • 25% is tax-free
  • The remainder is taxable as income

Money Purchase Annual Allowance 

The government is alive to the possibility of people taking advantage of the flexibilities by 'recycling' their earned income into pensions and then immediately taking out amounts from their pension funds. The Money Purchase Annual Allowance (MPAA) sets the maximum amount of tax-efficient contributions an individual can make in certain scenarios. The allowance is set at £4,000 per annum, with no carry forward of the allowance to a later year if not used in the year. 

The main scenarios in which the reduced annual allowance is triggered are if:

  • Any income is taken from a flexi-access drawdown account; or
  • An uncrystallised funds pension lump sum is received                                         

However, just taking a tax-free lump sum when funds are transferred into a flexi-access account will not trigger the MPAA rule.

Planning for your retirement is complex - so please do seek professional advice. If you would like to discuss personal tax and retirement, please do get in touch with our Personal Tax Team - we would be delighted to hear from you.

DISCLAIMER: This information is for guidance only, and professional advice should be obtained before acting on any information contained herein. We will not accept any responsibility for loss to any person as a result of action taken or refrained from in consequence of the contents of this publication. 

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