Best way to invest for retirement: Analyst shares ‘special helping hand’ to be aware of


    Benefits of pension contribution

    Tax relief is one of the biggest benefits of investing into a traditional pension fund, with investors receiving up to 45 percent tax relief for each contribution during the 2020-2021 tax year. 

    Personal pensions such as Self Invested Personal Pension, SIPP, has 20 percent of contributions paid by the government into one’s pension along with an additional rate income tax reclaims.

    Mr Morgan explained: “For example, an investor contributes £8,000 into their SIPP and £2,000 is claimed back from HMRC by the pension provider meaning £10,000 is invested overall. A higher rate taxpayer could claim back up to a further 20 percent via their tax return, reducing the overall cost of the contribution to as little as £6,000. In the same instance, additional rate taxpayers could claim back up to a further 25 percent making the cost just £5,500 for a £10,000 contribution.”

    Additionally, money invested in a pension can avoid Capital Gains Tax (CGT) and Income Tax.

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