The pension generally only makes the press when something has gone wrong. It is sad to say that how the pension plan is boosted by of all people the taxman rarely makes the back pages of Newspapers, never mind pages 1 to 5.
Though hard to believe there are several juicy tax breaks where pensions are concerned that may make you feel like jumping for joy. Read on.
When you hit 55 you can begin withdrawing your pension, and what's more up to 25% of your pension pot can be withdrawn tax free. If that is not enough to make you lick your lips, then the fact that it does not have to be withdrawn in one go should also be cause for a dance. This money can be used for anything you want to from a stocks and shares ISA to a new car.
If you want another tax free bonus however, why not reinvest 30% of it back into the pension fund, as the taxman won't take a penny.
Though it is hard to believe the taxman is chipping in to a pension pot, the reality is that that is exactly what is happening. The amount is correlated to the tax bracket you are on, and generally the higher your tax bracket the more HMRC will pay into a pension pot.
There is also no tax to pay on capital gains and growth produced inside the pension either, so any gain from property, share prices, and other growth are capital gains tax free. This makes a considerable difference over time especially decades. For example, based on a lump sum of •£1000, a taxed 8% over 40 years would see a growth of •£21,000 give or take, while an untaxed 10% based on the same value would see a growth of •£45,000 give or take. No need to be a maths genius to see the difference.
The open market option allows you to take your pension pot and shop around for the best annuity money can buy. This puts you in a position of control over your future retirement funds and involves turning your pension plan pot into retirement income.
The experienced investor may wish to go for income draw down, but these are best suited for pots of •£200,000 or more.
As you can see the pension plan is boosted by the taxman of all people, and for this reason alone it is worth taking out a pension plan just to put a smile on your face.
Artice Source: http://www.articlesphere.com
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