-
For most people the main benefit is that employers make a contribution into pension and this is free money.
-
You pay income tax on withdrawal or income from annuity but there’s no cap gains to pay and yea there’s the 25% tax free.
Typically folks are in a lower tax bracket on the withdrawal compared to the paying in. Obvs. there are exceptions.
-
There are a number of other benefits.
No tax within the pension, so no tax on interest, dividends and capital gains.
This can extend to other countries because of tax treaties if the pension plan makes use of it, e.g. investing in the US as a UK pension.
If you die before 75 your beneficiaries receive your pension inheritance tax free (this one may be scrapped).Edit: plus no need to track and calculate for annual tax self assessment.
You are reading a single comment by @hippy and its replies.
Click here to read the full conversation.
Matt101
Howard
hesa
@hippy
You pay income tax on your pension withdrawals if your total annual ‘non-savings, non-dividend’ income is more than your personal allowance – the amount every person is entitled to earn before they start paying income tax. For the 2023/24 tax year the standard personal allowance is £12,570.1
Your total annual non-savings, non-dividend income could include the State Pension, a private person or workplace pension, earnings from a job or self-employment, income from a rental property and any taxable benefits.
You’ll pay basic rate income tax at 20% on total annual non-savings, non-dividend income between £12,570 and £50,270. Above this threshold you pay a higher rate of 40% – and on income above £125,140, you’ll pay tax at 45%.1 Also, if your total income is greater than £100,000, then your personal allowance will be reduced by £1 for every £2 of income you earn over £100,000.
You save tax by paying into your pension but then cop it when it pays out. So, what's the benefit? If you live cheap you pay less tax overall?
Oh, there's a 25% tax-free lump sum rule? So, some of your pension is tax free?