Tax benefits of pensions
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The Government is so keen to persuade people to save towards their retirement that it has established a number of tax breaks and incentives to encourage us to do so.
The combination of these incentives has made pensions the most compelling savings vehicles for retirement.
The tax benefits of pensions can be summarised as:
| A minimum of 20% relief, whether you pay tax or not - and up to 50% relief (2010/11) for higher rate taxpayers. | |
| No tax on growth of capital or on income, within the pension fund. | |
| No tax if you die before drawing benefits. | |
| 25% of your pension fund available as a lump sum, free of tax, at retirement. |
In exchange for this raft of tax breaks, the Government lays down three conditions:
| A maximum sum that can be invested each year into pensions. | |
| A maximum cumulative sum that can be accumulated within an individual's pension funds. | |
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At least 75% of the pension fund must be used to provide an (starting at a date of your choice between ages 55-77 . The fund cannot be accessed early, or used as security for a loan – it must be used for solely for retirement purposes. |
Remember though that tax rules can change and the value of favourable tax treatment depends on each individual’s circumstances.
 Saving for retirement |
