Make the most of your pension allowances

The deadline for mopping up any unused pension contributions is 31 January, says Debbie Harrison in the FT, so if you want to take advantage, act now. Until 2006, when the pensions taxation regime will change, the Inland Revenue allows you to backdate, or carry back', a contribution to a personal pension, or its predecessor, the retirement annuity plan, to the previous tax year. What's more, if you have a retirement annuity plan (RAP) and you act by 5 April, once you have used this year's allowance, a similar carry forward' rule gives you access to unused allowances from a further six previous tax years, starting with the earliest.

Maximising pension payments is very tax-efficient because contributions qualify for full tax relief and the fund builds up almost tax-free. However, you should check the small print before investing more money in some RAPs and older personal pensions as they often have less attractive terms, charges and investment options. RAPs, for example, do not allow you to switch annuity provider if yours doesn't offer good rates. If you've filed your return for 2003-04, it's still not too late. You just need to have made an election and payment by the end of this month by submitting a completed PP43 form to your local tax office.

Finally, under the new regime there will be a cap or "lifetime allowance" (LTA) of £1.5m in 2006-07 for your pension pot and a maximum tax-free cash limit of 25% of the fund. Penalties will apply if you exceed this, but if you already have a large fund or a tax-free cash allowance you can apply to the Inland Revenue to have your pension fund ring-fenced to escape the tax penalty.

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