From top-up to PEP-up: stretch your savings

SPECIAL REPORT: PENSIONS; Neil Baker looks at four alternative ways of boosting your retirement funds

Top-ups

If you are part of an employer's pension scheme, you can make top-up payments, known as additional voluntary contributions on top of the money you have to pay to the main scheme. You can use these AVCs to increase the benefits you will get when you retire. Some employers offer a range of AVC schemes so that you can use your extra contributions to top up a particular benefit, such as life insurance.

You are also allowed to make additional contributions to a separate pension scheme run by someone other than your employer, such as an insurance company. These are known as free-standing AVCs. Both types are tax deductible.

Like the rest of your pension, you cannot get your hands on the benefits until you retire. That inflexibility can be a drawback. So far, only 10 per cent of people in occupational pensions have used this top-up facility to lift their pension entitlement, but if you are in such a scheme it is something you should consider.

Free-standing AVCs are simple to understand and a relatively safe form of investment but as with all financial services it pays to check the charges. If your contributions are paid into a unitised fund there is often a 5 per cent spread between the buying and selling price. There is also commission.

Most of the leading pension providers offer FSAVC schemes, so it pays to shop around. If you do it by telephone, make clear that you are only interested in topping up your existing occupational pension; you do not want to switch to a personal pension plan.

Moving offshore

There is something illicit, mysterious, even a little bit sexy about the idea of offshore investment. But if you are approaching retirement it can be a fairly simple and effective way to reduce your tax bill. Offshore centres such as Jersey, Guernsey and the Isle of Man have their own arms of mainstream UK financial institutions offering savings products with a different taxation basis.

Savings and investments made through these havens pay returns without deduction of tax, although UK residents are still required to pay the equivalent of the undeducted tax to the Inland Revenue. Depending on when the interest is credited to your account, you can delay paying tax for up to 18 months.

But some offshore products allow you to roll-up the potential tax liability until you cash in your investment. Gains are only taxable when they are brought back into the UK. Higher-rate taxpayers can benefit by putting off taking profits until they have stopped work and moved to a lower tax rate. While the value of the fund accumulates, investors can also take a form of income by selling fund shares. Offshore centres such as the Channel Islands have designated territory status, which means their regulation and investor protection is of a high standard.

PEPs

Contributions made into a personal equity plan are not tax deductible, but any income or capital gains are tax free. Each year every adult is allowed to invest up to pounds 9,000 through PEPs. Up to pounds 6,000 can be put into a general PEP and the remaining pounds 3,000 can be invested into a single company PEP. The attraction of using PEPs is that you can sell them as you want and you do not have to sell them in the same order that you bought them. If you buy from a number of different organisations, you can check how much each has grown over the years and decide whether to hold or sell. With the most common type of plan the manager will put your money into one or more unit or investment trusts. These are vehicles that pool investors' money to buy shares. Different unit trusts are managed to achieve different aims: they might go for good capital growth, high income, focus on small companies or just make sure they own shares in the big companies that make up the FT-SE 100.

When you put money into a PEP you will be charged an initial fee based on a percentage of the amount invested. Anything more than 5 per cent should be questioned. There will also be an annual management charge. The size of this will vary according to the type of fund. Anything over 1.5 per cent should be questioned, unless the fund is very specialised.

Endowments

With-profits endowment policies are usually used as an investment plan to pay off a mortgage but can also be a way of saving for the long-term. With an endowment policy you agree to make regular payments for a fixed period, normally of at least 10 years. You can surrender the policy early if you want to get your money back sooner than planned. But the policies are structured so that much of the value does not come until the last few years before it matures. Historically only a third of policies taken out reach maturity. Some 30 per cent are cancelled in the first three years and 40 per cent are surrendered or sold. If a policy is surrendered early, the amount the policy-holder gets back from the company that sold the policy varies. Many people who want to cash in early are disappointed when they discover that the surrender value of the policy is a lot less than they expected. But it is possible to get more from the policy by selling it in a growing second hand market. And buying a policy in the second hand market can be an attractive investment because it offers a guaranteed minimum value on a specific date.

Suggested Topics
News
The Banksy image in Folkestone before it was vandalised
people
Life and Style
tech

Sales of the tablet are set to fall again, say analysts

Sport
football West Brom vs Man Utd match report: Blind grabs point, but away form a problem for Van Gaal
Arts and Entertainment
Gotham is coming to UK shores this autumn
tvGotham, episode 2, review
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
i100
Arts and Entertainment
Bloom Time: Mira Sorvino
tvMira Sorvino on leaving movie roles for 'The Intruders'
News
First woman: Valentina Tereshkova
peopleNASA guinea pig Kate Greene thinks it might fly
News
Brian Harvey turned up at Downing Street today demanding to speak to the Prime Minister
news

Met Police confirm there was a 'minor disturbance' and that no-one was arrested

Arts and Entertainment
George Lucas poses with a group of Star Wars-inspired Disney characters at Disney's Hollywood Studios in 2010
films

George Lucas criticises the major Hollywood film studios

Voices
Chris Grayling, Justice Secretary: 'There are pressures which we are facing but there is not a crisis'
voices

Does Chris Grayling realise what a vague concept he is dealing with?

Life and Style
A street vendor in Mexico City sells Dorilocos, which are topped with carrot, jimaca, cucumber, peanuts, pork rinds, spices and hot sauce
food + drink

Trend which requires crisps, a fork and a strong stomach is sweeping Mexico's streets

Life and Style
The charity Sands reports that 11 babies are stillborn everyday in the UK
lifeEleven babies are stillborn every day in the UK, yet no one speaks about this silent tragedy
News
Blackpool is expected to become one of the first places to introduce the Government’s controversial new Public Space Protection Orders (PSPOs)
news

Parties threaten resort's image as a family destination

Life and Style
Northern soul mecca the Wigan Casino
fashionGone are the punks, casuals, new romantics, ravers, skaters, crusties. Now all kids look the same
Life and Style
gaming

I Am Bread could actually be a challenging and nuanced title

Finacial products from our partners
Property search
Going down the wrong road: parking fines are
nudging people into debt difficulties

Charges related to car parking rising and leading to serious money woes

Going down the wrong road: parking fines are nudging people into debt difficulties

Stacks of income: Drax is among the companies in Neil Woodford’s portfolio that he believes will pay strong dividends

Mark Dampier: Woodford’s young companies could be the stars of the future

Stacks of income: Drax is among the companies in Neil Woodford’s portfolio that he believes will pay strong dividends

A trader works on the floor of the New York Stock Exchange

Simon Read: The markets might not be calm but you should be

Don't panic, it’s a wise idea to check investments regularly to ensure they are on target for your hoped-for returns

Only six per cent of the 13,000 new homes bought during Help to Buy’s first nine months were in London

Money Insider: Help to Buy must be boosted by building

With little or no wage growth being seen in the UK, increasing house-price inflation could see the number of first-time buyers slide further, unless there’s a new accelerated house building programme

House buyers can take their pick of more than 3,500 home loans, the most available since the financial crisis

Simon Read: Those cheap home loans may be built on shaky foundations

You should ignore the headline offers and trickery and work out the total cost of borrowing under different deals

Denise Leigh, who appeared in a production
of Rigoletto with Alan Opie, was left without an essential service

The opera singer, the broadband delay and why customers aren’t divas if they expect a good service

Denise Leigh, who appeared in a production of Rigoletto with Alan Opie, was left without an essential service

Problem debt adds £8bn cost to the economy

A charity has calculated the cost to us all of unmanageable debt – from lost productivity to the extra demands on the NHS

Payday loan stores are to face tougher regulations after moves proposed by the Financial Conduct Authority (FCA) call on more responsible lending

Calls for payday lenders to sign up to an officially recognised price comparison site

The regulators are at last tackling the high-profile payday lenders, but they appear to be ignoring the growing problem of internet loan firms

According to the research, only one in five customers trusts their energy company

Rap for energy firms won’t stop the rising prices

As the cold weather hits, the question of soaring bills will be felt by each of us at home

Nikki Galloway has enthusiastically embraced buying and selling over the internet

Selling goods online: The pros and cons

Nikki Galloway (above) sells jewellery via her own website as well as on Facebook, Amazon and Bouf

The city of Queenstown on the shores of Lake Wakatipu with the Remarkables mountain range in the background.

You can have it all: Asian stocks get on the dividend bandwagon

Queenstown on Lake Wakatipu in New Zealand. The country’s stock market was boosted last month on John Key’s re-election

Staff at work in the packet and parcel section of the Royal Mail's Swan Valley mail centre

Bargain hunter: Halfords’ zero-VAT child car seats are cheap and with a safety message

Royal Mail is cutting its small parcel charges from 20 October

Elderly people living in certain countries abroad are being denied pension rises

Anyone who moved to countries including Australia, Canada, South Africa and a 100 other places, have had their pensions frozen at the rate it was paid at when they left the country

Governor money plans to save clients time and cash with its online service

Simon Read: Relegate struggling funds from your plans

Every fund has good years and bad, but consistent underperformance over a number of years points to something more fundamental

Investments: Spot the difference and pick a fund that’s ready to go it alone

Nick Train thinks luxury fashion brand Burberry is one of the companies that has prospered in digital marketing

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Customer Service Executive / Inbound Customer Service Agent

    £18 - 23k + Benefits: Guru Careers: We are seeking a Customer Service Executiv...

    ASP.NET Web Developer / .NET Developer

    £60 - 65k + Benefits: Guru Careers: We are seeking a ASP.NET Web Developer / ....

    Operational Risk Manager - Asset Management

    £60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...

    Project Coordinator - 12 month contract

    £27000 - £32000 Per Annum: Clearwater People Solutions Ltd: Our large charity ...

    Day In a Page

    Two super-sized ships have cruised into British waters, but how big can these behemoths get?

    Super-sized ships: How big can they get?

    Two of the largest vessels in the world cruised into UK waters last week
    British doctors on brink of 'cure' for paralysis with spinal cord treatment

    British doctors on brink of cure for paralysis

    Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
    Ranked seventh in world’s best tourist cities - not London, or Edinburgh, but Salisbury

    Salisbury ranked seventh in world’s best tourist cities

    The city is home to one of the four surviving copies of the Magna Carta, along with the world’s oldest mechanical clock
    Let's talk about loss

    We need to talk about loss

    Secrecy and silence surround stillbirth
    Will there be an all-female mission to Mars?

    Will there be an all-female mission to Mars?

    Women may be better suited to space travel than men are
    Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

    'They poured water on, then electrified me...'

    If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
    James Wharton: The former Guard now fighting discrimination against gay soldiers

    The former Guard now fighting discrimination against gay soldiers

    Life after the Army has brought new battles for the LGBT activist James Wharton
    Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

    Panic over Ebola threatens to infect the midterms

    Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell
    Premier League coaches join the RSC to swap the tricks of their trades

    Darling, you were fabulous! But offside...

    Premier League coaches are joining the RSC to learn acting skills, and in turn they will teach its actors to play football. Nick Clark finds out why
    How to dress with authority: Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear

    How to dress with authority

    Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear
    New book on Joy Division's Ian Curtis sheds new light on the life of the late singer

    New book on Ian Curtis sheds fresh light on the life of the late singer

    'Joy Division were making art... Ian was for real' says author Jon Savage
    Sean Harris: A rare interview with British acting's secret weapon

    Sean Harris: A rare interview with British acting's secret weapon

    The Bafta-winner talks Hollywood, being branded a psycho, and how Barbra Streisand is his true inspiration
    Tim Minchin, interview: The musician, comedian and world's favourite ginger is on scorching form

    Tim Minchin interview

    For a no-holds-barred comedian who is scathing about woolly thinking and oppressive religiosity, he is surprisingly gentle in person
    Boris Johnson's boozing won't win the puritan vote

    Boris's boozing won't win the puritan vote

    Many of us Brits still disapprove of conspicuous consumption – it's the way we were raised, says DJ Taylor
    Ash frontman Tim Wheeler reveals how he came to terms with his father's dementia

    Tim Wheeler: Alzheimer's, memories and my dad

    Wheeler's dad suffered from Alzheimer's for three years. When he died, there was only one way the Ash frontman knew how to respond: with a heartfelt solo album