26 Feb 2012

Benefits of Pension Tax Relief

Benefits of Pension Tax Relief

What can you do to boost your income at retirement?  This article looks at the tax advantages of pension tax relief and provides some pointers to increasing your income at retirement.

What can you do to boost your income at retirement?  This article looks at the tax advantages of pension tax relief and provides some pointers to increasing your income at retirement.

Many people have some provision in place for retirement via a work or private pension.  When you come to retire the state pension could provide £6,000 - £7,000 per annum.  Is that sufficient to live on?

What can you do to boost your income at retirement?

Let’s look at the tax advantages of pension tax relief and some pointers to increasing your income at retirement.

Pensions are one of the most tax efficient ways to save for retirement.  If you make a personal contribution, 20% of the contribution is paid by the Government in basic rate tax relief.  If you pay tax at a higher rate you can normally claim further tax relief back via your tax return.

How this works:

40% Tax Rate Payers50% Tax Rate Payers
You PayGovernment AddsTotal in your pensionClaim back up to an extraCutting the cost toClaim back up to an extraCutting the cost to
£2,880
£720
£3,600
£720
£2,160
£1,080
£1,800
£10,000
£2,500
£12,500
£2,500
£7,500
£3,750
£6,250
£20,000
£5,000
£25,000
£5,000
£15,000
£7,500
£12,500
£40,000
£10,000
£50,000
£10,000
£30,000
£15,000
£25,000

Please note, the exact amount of tax relief will depend on your circumstances and tax rules may change.  You must pay sufficient tax at the higher/additional rate to claim the full tax relief.

How can you improve your pension income at retirement

  • Increase your contributions.
  • Shop around for the best retirement income.
  • Have you thought about starting an ISA.
  • Is there a salary sacrifice scheme available via your employer.
  • Does your spouse/partner have a pension.
  • Look at the level of investment risk you wish to take.
  • Is it beneficial to consolidate any previous pensions you have.
  • Does your existing pension contract have high charges.
  • Regularly review your pension.
  • Keep track of the performance of your pension fund.

Gordon Leslie Dip PFS, Financial Adviser

Regulated by the Law Society of Scotland.  Authorised and Regulated by the Financial Conduct Authority.

The Financial Conduct Authority does not regulate Tax advice. 


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