As we all know, the basic state retirement pension or ‘old age pension’ as it is commonly known, is not really sufficient to provide anyone with a comfortable retirement, even when supplemented by the additional earnings-related state benefits. The value of state pensions will reduce even further in the future as the proportion of older retired people in the population increases, and the proportion of working taxpayers reduces. It is, therefore, essential that we save for our retirement in the most tax efficient manner possible.
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Your pension contributions, once made, will grow in funds where there is no liability to tax on capital gains and where all forms of investment income (except dividends) are also tax-free.
On 6th April 2001, the Government introduced a new type of private pension, known as a Stakeholder Pension
In order to ensure that your investment strategy matches your risk profile the self-investment option provides access to a wide range of investment vehicles and providers.
Buying an annuity means using your built-up pension fund to buy the guarantee of an income for life from a company.
This option allows you to retire gradually. It can make the most tax efficient use of your pension fund and it also allows you to build up the value of your pension when it suits you.
Instead of buying an annuity, with drawdown your money remains invested and can continue to benefit from investment performance in a tax efficient environment.