Free money

Are you switched on to the tax benefits of pensions?

Research by Standard Life reveals that more people are now aware of the tax-efficiency of pensions than a year ago. Almost 2 in 5 people (39 per cent) are aware that the Government automatically adds £1 for every £4 you invest in a pension if you are a basic rate taxpayer[1] (subject to annual limits[2]). In 2012, only 3 in 10 (29 per cent) UK adults said they knew the Government added this level of ëfreeí money to pension contributions.

Tax-efficiency of pension saving
The increase in awareness has almost doubled among 18 to 24-year-olds – 20 per cent said they knew about the tax-efficiency of saving into a pension, compared to just 11 per cent a year ago; overall, 45-54 year olds were the most likely to be aware (46 per cent).

There continues to be a gender bias – almost half
(48 per cent) of men said they were aware of the incentives for investing in a pension, while 7 out of
10 women (70 per cent) said they were unaware.
There are several ways people can be tax-efficient with their pension provision and it can depend on the type of pension plan you have, so it is important to obtain professional financial advice to assess the most appropriate options for your particular situation.

What you need to know
Consider increasing your pension contributions when you can – for example, if you receive a pay increase or finish paying off a loan – or perhaps pay in a lump sum if you inherit some money. Remember, with pension plans, the Government contributes whenever you do, by rebating the income tax on your contributions. So if you are a basic rate taxpayer, in most cases for every £4 you save in a pension, the Government adds another £1; if you’re in a workplace scheme, your employer is likely to be topping up your contributions too. Also remember there are limits to how much you can invest each year[2].
If you are a higher rate or additional rate taxpayer and investing in a personal pension, remember to claim back your tax rebate through your tax return or by contacting your tax office.

If you’re younger, don’t think that because you can’t save very much, there’s no point bothering. Even if you can start to save a small amount from a young age it can make a difference when you think about the tax benefits too.

If you don’t feel you can lock your money away in a pension just now, but still want exposure to the potential gains of the stock market, then you might want to consider investing in a tax-efficient Stocks & Shares Individual Savings Account (ISA) instead. This means you can still access your investment, while you also have the potential to help your money grow and you won’t be taxed on your investment returns. Always remember that the value of an investment can fall as well as rise, and may be worth less than you invested.

[1] For all basic rate taxpayers (2013/14 tax year). Higher rate and additional rate taxpayers who make pension contributions would receive a greater amount from the Government. Laws and tax rules may change in the future. The information here is based on our understanding in April 2013. Personal circumstances also have an impact on tax treatment. All figures relate to the 2013/14 tax year, unless otherwise stated
[2] The maximum amount you can invest in a pension and receive tax relief on in any one tax year is equal to your qualifying earnings in the tax year concerned; tax relief could be withdrawn by a tax charge on any contributions above
£50,000, although it may be possible to invest more if you have unused allowance from earlier years, but this is something you should seek advice about based upon your personal circumstances.
All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2,059 adults. Fieldwork was undertaken between 25-28 January 2013. The survey was carried out online. The figures have been weighted and are representative of all UK adults (aged 18+).
Total sample size for the 2012 YouGov Plc survey was 2,054 adults. Fieldwork was undertaken between
9-12 March 2012. The survey was carried out online. The figures have been weighted and are representative of all UK adults (aged 18+).

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