Pensions, Contracting and Tax Relief

_dannyc_

Hello

Firstly, I apologise for my stupidity, but for me tax and pensions belong in Arthur C. Clarke's Mysterious World.

I recently started contracting and have been advised to open a pension scheme for tax purposes. From what I understand - and it is very little - what I pay into a pension scheme doesn't get taxed. I was given a brief example which said that if I earn 50K in a year, i'd be 12K over my threshold and would have to pay extra tax on that 12K. However, if that 12K had been paid into a pension scheme, I wouldn't. (Forgive the figures there. I have a feeling that I was also told I can't pay more than £300 per month into a pension scheme, so that wouldn't work out, but you get the point).

What I would like to know is, firstly, is what is written above pretty much correct? Secondly, and most importantly, can I touch that money? At the moment, a pension would be for tax relief purposes only, and not to plan for my retirement. As a result, if that money i'm putting aside can't be touched, there is little point in me doing it.

Any advice would be greatly appreciated as i'm more than confused.

Many thanks

Danny

EdInvestor

Basically, it's wrong.It's not taxed now, but it is after you retire - ie it's just deferred tax.

And you can't touch any of it until you're 55, at which point 25% can be extracted but that's all.The rest of the capital remains out of your control.