Pension Conntribution Yes or No

Just_landed

Hi everyone I have been an avid fan of M S E for quite sometime now and by adopting the advise from the MAIN MAN ( Martin ) and many good people in the forums have saved myself lots of money, and increased my capital as well, I believe, by the encouragement given in these forums. Thank You. With that said I could do with some advice on pension contributions. My personal pension matures later this year (2008) The question is if you were me would you put up to the contribution limit in it this tax year 78 pence by me would the government put in 22 pence, then again in the next tax year 80 pence me and the government 20 pence ? Would this be a big advantage? I am thinking its like putting money into a savings account for less than a year and getting interest rates of 22% & 20% ?

dunstonh

I am thinking its like putting money into a savings account for less than a year and getting interest rates of 22% & 20% ?

Not quite as you don't get to withdraw the money which you can with interest on savings. However an equivalent income rate of around 10% thanks to the tax relief is the figure you have in your mind (ignoring any growth).

£3600-£792 (tax relief) = £2808
take back 25% tax free (assuming no growth) = £1908 (2808-900). So cost to you is £1908.
annuity at 7% on £2700 = £189p.a.
That £189p.a. has cost you £1908. An equivalent return of 9.91% guaranteed for life.

Just_landed

Thanks for the explanation dunstonh I knew you could number crunch it for me
thank you.