Independent Wealth Management

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The importance of tax relief

When discussing retirement planning with our clients, a great deal of attention is always given to fund choice and the corresponding past performance figures.

However, it is important to remember one of the fundamental reasons why pensions should be the investment of choice for retirement planning.

When you contribute to a pension, everyone can receive basic rate tax relief – currently 20%.  Yes everyone!  Even a non-taxpayer, as long as the contribution is £3600 per year or less.  So you could for instance invest £100 per month into a pension scheme and your investment would be immediately enhanced to £125 per month.  There really is no other investment quite like this.  There are other investments that also have tax efficiency, but the position with pension contributions is truly unique and should not be overlooked.

For a high rate tax payer, the situation is even better.  An additional 20% can be reclaimed.  Therefore it will cost just £75 per month to invest £125 per month.  All high rate tax payers should see this as an extremely attractive deal.

Some high earners are now paying 50% tax.  Clearly the advantages to those are greater still.

There are limits on how much you can contribute to a pension.  Some of our clients use pensions to recover as much of their high rate tax as possible.  After all, why pay so much tax when you don’t need to.

We all need to finance our retirement somehow and this inevitably necessitates tying some money up until retirement.  Why not speak to us about a strategy for your retirement.

Please note that this article is based on current taxation and legislation.  Please be aware that funds can fall as well as rise in value.

The above is for guidance only and should not be construed as advice, as financial planning takes into account your personal circumstances.

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Barry has helped me with pension advice and monitoring.  He has been extremely professional, courteous and helpful. Thank you.

Jim Melvin

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