A pension is a tax efficient 'wrapper' with the specific purpose
of securing an income for you when you stop working and reach
retirement age. The government wants to encourage us to support
ourselves financially in retirement and provides incentives to save
in the form of tax advantages.
Key benefits
-
Tax relief on contributions
Regardless of earnings, all UK residents under the age of 75 can
enjoy basic rate tax relief of 20%. Higher rate taxpayers are
entitled to an additional 20% tax relief via their self-assessment
and additional rate tax payers an extra 30%.1 The tax
relief applies to the lower of your total annual earnings up to a
maximum of £255,000 (for tax year 2010/11).
-
No capital gains or income tax
Investments within the pension grow free of capital gains tax
and income tax (please note that the 10% tax credit on UK equity
dividends is no longer reclaimable).
-
Provision for others
For example, a grandparent might contribute £2,880 on behalf of
a grandchild, worth £3,600 after basic rate tax relief.
-
No inheritance tax
If you die before taking your retirement benefits, you can
normally pass the fund to your chosen beneficiaries free of
Inheritance Tax.
-
Taking benefits
You can access the money in your pension from the
age of 50, (age 55 in April 2010).
1 From April 2011, tax relief on
pensions contributions will be restricted for those with incomes of
£150,000 and over, and tapered down until it is 20 per cent.