Immediately vested contributions

What you do is:

(This illustration assumes that all of the qualifying contribution can be relieved at the 40% income tax rate)

Make a payment to your pension provider of say £40,000.

Your pension provider then recovers the 20% tax deemed to have been deducted of £10,000.

You then claim an additional 20% higher rate tax relief, this being £10,000. You then immediately vest the fund created (£40,000 + £10,000) after taking 25% or £12,500 as a cash free lump sum.

The result?

You have created a fund of £37,500 (£50,000 less lump sum £12,500), which you could start to take an annuity or drawdown based on this fund. The amount of the drawdown or annuity will depend on current annuity rates.

You have invested net funds of just £17,500 to do this (£40,000 less higher rate tax relief £10,000 and cash lump sum £12,500).

If you would like advice on the options available to you and would like to book and appointment with one of Prime’s Financial Advisers please contact Wendy Tipler on 0845 872 2099 or email watipler@primeaccountants.co.uk