Why pensions are one of the best tax breaks around
You're entitled to tax relief at your highest rate on every pound you contribute up to a maximum level. What's more, the pension fund itself pays no tax on its capital gains, nor its dividend and other investment income. On retirement, you can take a tax free lump sum as part of your pension up to a set limit.
You can also make savings on the provision of life cover if this forms part of your pension policy. For schemes started after April 2001, you're entitled to full tax relief at your highest rate on the premiums – the same tax relief you get on your pension contributions – providing they don't exceed 10 per cent of your total contributions. For schemes created before this date, tax relief is given at your highest rate providing the life's premiums don't exceed 5 per cent of your total pensionable earnings. If you're in a company pension scheme, you're not allowed this option as an individual, though the scheme may cover you. But if you are still contributing to a life assurance policy taken out before 1984, you will still be getting some tax relief.
Payments made out of taxed income to personal or stakeholder pension plans are topped up by the taxman at the basic rate of tax (22 per cent). So, for example, if you pay in £7,800 the taxman will make an additional payment of £2,200 to the pension company making a total investment of £10,000.
Higher rate (40 per cent) taxpayers get an extra £3,000 tax relief by claiming it back on their tax return.
Next: Ask for a tax-free golden handshake if you're made redundant

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Tax planning in depth
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Guides
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Paul Wilcox, chairman and technical director, WAY Group outlines the basics of inheritance tax.
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