Celebrating a 50th birthday between now and 5 April 2010 means pension benefits can be taken immediately, but turning 50 even a day after this date will mean waiting a further five years before you can access your hard-earned pension.

Killik & Co points out that it may also make sense to think about maximising the amount put into a pension before drawdown.

For example, if a 49-year-old higher-rate taxpayer makes a pension contribution of £8,000, this will be grossed up to £10,000 and they will receive a further £2,000 which can be reclaimed on their tax return. The net cost is therefore £6,000 for a £10,000 contribution.

Upon turning 50 next march, this person would be entitled to take 25 per cent, or £2,500, tax-free cash from that £10,000 contribution, even if they don’t plan to retire or to take an income from that pension at that point.

By doing so, this individual will always have the ability to draw pension income whenever they choose – even before 55. The tax-free cash can then be used to reduce the £6,000 net contribution, resulting in a net cost of £3,500 for £7,500 in the pension – an uplift of 114 per cent.

Current market volatility may deter some from contributing fresh money into their pension, but as Malcolm Cuthbert, managing director of financial planning at Killik & Co, explains, ‘Investors wishing to maximise their retirement pot should make sure they are effectively taking advantage of all tax benefits available and drip-feeding regular pension contributions each month to reduce their exposure to market highs and lows.

There has long been a debate about whether ISAs or pensions and SIPPs are more tax efficient, but there is no reason why you shouldn’t have both and move from one to the other when it benefits you most.
 
‘We encourage investors to use their annual ISA allowance, but for some it may make sense to transfer ISAs – and other shares owned – into a SIPP as they near retirement. This makes sense particularly for higher-rate tax payers, who could transfer £6,000 from an existing shareholding into a SIPP and generate £4,000 of tax relief.’