pension savings!

begbeer

An independant financial advisor in the Western morning news (local devon newspaper) has suggested in these lean times for savers we put what money we have spare and will not need in the foreseeable future into pensions as we will get 25% tax relief. Sounds a very good idea to me what do the rest of you think, I do realise will not be able to draw the money out until I reach pension age but will be able to get 25% of my contributions out then or if market still bad leave them in their to grow hopefully

dunstonh

You dont put money into pensions to get 25%. You put money into pensions that you want to use when you retire (a few exceptions exist) and if the pension is the best option for you (it may not be as there are multiple options).

You have to note that compliance requirements are such that any media article involving an IFA would be written to be generic to the extreme.

begbeer

Yes but where else could I put in £300 and have it worth £375 straight away. I am 58 so therefore close to retirement age and need all the pension fund I can get as not due a full state pension. Also the 25% lump sum is tax free which will help.

dunstonh

Yes but where else could I put in £300 and have it worth £375 straight away.

You are not going to get £375 though. You kiss goodbye to £300 and ignoring growth you can only get back £93.75 with the rest of the capital being used to provide an income.

If that is what you are after then pensions are the most efficient way of providing an income. However, they are near useless when it comes to capital provision.

EdInvestor

begbeer wrote: »

Yes but where else could I put in £300 and have it worth £375 straight away.

But the 20% tax relief (not 25%) is only deferred, it's not s freebie.You pay 20% tax on the income from the pension after you retire, so the Govt claws it back.Only the 25% lump sum is tax free.

begbeer

Yes but I will only pay income tax on it if my income is above the personal allowance

dunstonh

begbeer wrote: »

Yes but I will only pay income tax on it if my income is above the personal allowance

That is correct. However, if your income is at that sort of level to begin with then you could find pension credits are going to be reduced due to increased income and whilst you will be a little better off (as its not a £1:£1 reduction any more) the gains will be small.

EdInvestor

You certainly shouldn't do this if your retirment income is likely to be less than the basic state pension, as it will simply reduce your entitlement to pension credit.

iarocu

EdInvestor wrote: »

You certainly shouldn't do this if your retirment income is likely to be less than the basic state pension, as it will simply reduce your entitlement to pension credit.

I take it retirement income means household income for man and wife.. So where one spouse has say 20k pension then the couple won't qualify for pension credits. Therefore a pension payable to the other spouse below the personal tax allowance would be tax free and and wouldn't mean losing other benefits?

dunstonh

Correct. Its household income.

£20k pension in one name or 10k in each wont improve the tax credits but the person with 20k in one name pays £1000 a year more in tax than the two with 10k each. A lop sided pension like that indicates bad planning.