What is an immediate pension?
An immediate pension is a facility that allows people over 50 to make an
investment into a
stakeholder pension and start taking the benefits straight away.
How does it work?
You currently need to be aged 50 (55 from 2010) or over and under age 75 to take out an immediate pension. Even if you don't have any earned income and don't pay tax, you can still benefit from an immediate pension. You could even have retired already and still qualify.
Regardless of your level of earnings - or even if you have no earnings at
all - you may be
able to contribute up to £3,600 gross this tax year into a stakeholder
pension. If you have
earnings, you can contribute up to that level.
An investment of £3600 will actually cost you only £2.880 because all stakeholder contributions are payable net of 20% basic rate tax, whether you are employed, self-employed, not in work or even retired.
The Government will add the tax of £720 into your pension fund. If you are a higher rate taxpayer, you are able to claim up to an additional £720 tax relief through your annual tax return.
This information is based on NFU Mutual's understanding of current tax
legislation which is
subject to change.
You can take the benefits immediately
If you take your investment as an immediate pension, if you have invested £3600, you can
choose to take up to £900 in tax free cash with the balance of the fund
going to buy a
guaranteed income for life.
Like all pensions, the income you receive is subject to tax. However, if your total income is
less than your personal tax allowance there would be no tax to pay. The
current personal tax
allowances are listed below:
- £5,435 for those under age 65
- £9,030 for people aged between 65 and 74
- £9,180 for those over 75
Why stop at one pension?
Why not set up a series of immediate pensions? The beauty of this is that
you can go on
contributing up to £3,600 gross to a stakeholder and taking the benefits
immediately every
year from age 50 to age 75. By doing so you can build up a growing level
of income. (Note:
this income will be taxable and the minimum age will increase to 55yrs in
2010)
Learn about generating income in retirement with our FAQ
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