Best-kept pensions secrets revealed

Best-kept pensions secrets revealed
24 October 2012

MUCH is said about pensions and the need to save for the future. You probably think you have read all you need to know about pensions, but here are six little-know pension secrets that could transform your retirement... 

1. You can take advantage of tax-relief

It is not often that you get something for nothing. However some countries will give their tax-residents tax relief for making pension contributions. For example, basic rate taxpayers in the UK can receive 20% tax relief meaning that for every £100 that goes into their pension pot, it only costs £80. The other £20 is paid into your pension scheme instead of going to the taxman. Higher rate taxpayers can get even more benefit with every £100 paid costing as little as £50.

This benefit doesn’t stop just because you now live offshore. If you were tax resident in the UK in the last five tax years then you may still be entitled to tax relief on up to £3,600 of pension contributions per year. This means that if you pay in £2,880 in any tax year then the UK government could also pay up to £720 into your pension scheme.

2. You can choose when to retire

By using a personal pension you do not have to wait until you are 60 or 65 to take your retirement benefits. You are entitled to take a tax-free cash lump sum and income at any age from 55 onwards. This means that you can retire at an age while you are still young enough to enjoy it.

3. Your pension fund can be extra life insurance

One of the major concerns for people is will their family be provided for when they die. If you die before you crystallise any pension benefits, your pension fund can be returned to your spouse or beneficiaries free of any tax. That means that if you have £100,000 in your pension scheme then £100,000 will return to your family in the event of your early death.

In addition the entire SIPP or QROPS fund can be paid out in cases of serious ill-health which can give you some extra piece of mind.

4. Your pension fund allows you to invest for your future

Pension fund investments don’t have to be restrictive; your pension fund can invest in most of the things that you can as an individual whether that is precious metals, stocks and shares, land and even commercial property.

This will allow you to create a balanced portfolio and one which matches your investment objectives.

5. You have the right to transfer your pension

Do you have little or no control over your pension? Is it performing poorly where it currently is? Is the country in which it is based not sufficiently tax efficient? If the answer to any or all of these is ‘yes’ then you don’t have to put up with it. You have the right to transfer your pension scheme to another which can match your objectives.

In some cases you can still transfer your pension after you have started to take benefits so it is never too late to start having the retirement that you want.

6. You can phase in your retirement

Retirement doesn’t have to be a one-time only deal. Many people are not aware that they can start to draw pension even while they are still working.

Providing you are over the age of 55 you can start to take tax-free cash and income from your personal pension.

You do not have to take it all in one go and can simply access your pension fund as and when you need it.

By drawing only what you need when you need it you can actually increase the amount of tax-free cash available to you.

As always, you should speak to a qualified financial adviser if you wish to take advantage of these and other pension secrets.

Pic credit: freedigitalphotos.net

Have you taken advantage of any of these pension secrets? What's your retirement plan? Comment below...

Comments

  • Colin
    Colin
    2012-10-24T11:28:41

    Hi Mark, many thanks for these interesting points. Could you please clarify what is meant by "cost" as in: "basic rate taxpayers in the UK can receive 20% tax relief meaning that for every £100 that goes into their pension pot, it only costs £80. The other £20 is paid into your pension scheme instead of going to the taxman. Higher rate taxpayers can get even more benefit with every £100 paid costing as little as £50."

    Does it mean a higher rate taxpayer will pay tax on GBP 50 and a lower rate tax payer will pay tax on GBP 80?

    I would also add to be aware of agent and ‘management’ fees associated with a) the fund and b) any transfers that the contributor may make.

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Communications manager
Brooklands Pensions
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