A married client couple who are in their 60's and have retired approached our experts about improving their income in retirement. They had some money to invest and wanted to know about ways to do it as they had read so many articles and brochures about high income plans, investment bonds and seen various attractive interest rates quoted by many Banks and Building Societies.
"Why not invest in a pension and get tax relief" was the response from our expert. Even though they have retired they can now save in Stakeholder Pensions following a change in the law last year. They each invested £2,808 into a Stakeholder Pension Plan. With tax relief from the Government, this was made up to £3,600. Giving them a total tax windfall from the Government of £1,584!
With tax relief, each of them had a pension fund of £3,600 which they retired on immediately. By investing in an immediate retirement plan, they were allowed to take tax free cash lump sums of 25% of the fund i.e. £900 each, leaving a pension fund of £2,500 to give them an income. In simple terms, they each paid in £2,808 and had tax free cash back of £900 which means it has cost them £1,908 each.
Overnight, with the benefit of tax relief by paying into a pension fund, they have transformed £3,816 into £5,000! That's a 31% bigger fund overnight to give them an income immediately! Where do you get a return like these days. They needed to act fast though as the tax year end was approaching and if they did not use their Stakeholder Pension Allowance by the end of the tax year they would have lost it. They are now planning to do exactly the same after the 5 April in the new tax year.
If you would like to know more about Stakeholder Pensions for retired people, please contact us or visit the Stakeholder Cafe.com.