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

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


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.


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.


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.

Start your day with The Independent, sign up for daily news emails
Suggested Topics
Have you tried new the Independent Digital Edition apps?
Arts and Entertainment
musicOfficial chart could be moved to accommodate Friday international release day
Wes Brown is sent-off
Italy celebrate scoring their second try
six nations
Glenn Murray celebrates scoring against West Ham
footballWest Ham 1 Crystal Palace 3
Arts and Entertainment
Drake continues to tease ahead of the release of his new album
Finacial products from our partners
Property search
Expect a new wave of fishing expeditions by fraudsters now we can invest our life savings

Cold callers and your pension: watch out for dangerous boiler room scams

Sean O'Grady received a cold call last week that was much more sinister than normal. Yes, someone wants to get their hands on his pension...

Fuel poverty could claim 100,000 lives over next 15 years, warns energy charity

The NHS is currently bearing a yearly burden of approximately £1.5bn treating cold-related illnesses every winter

MPs call for Equitable Life policyholders to be paid £2.8bn owed by government

Hundreds of thousands of people's policies were hit when the mutual insurer almost collapsed at the turn of the century

The elderly woman's family discovered the mistake

DWP criticised after it left a pensioner £26,000 worse off

The Department for Work and Pensions has been slammed after a series of cock-ups left an elderly pensioner £26,000 worse off.

The FCA has today issued a consultation paper on its plans to tighten up consumer credit rules to give consumers greater protection on guarantor loans and in other areas

Payday loan companies must publish their rates, says CMA

A 20-month investigation concluded that a lack of price competition between lenders has led to higher costs for borrowers

Vulnerable consumers are defined as those with poor literacy skills, those who have caring responsibilities, people with disabilities, dementia or the old

Financial companies are not meeting the needs of vulnerable consumers, says City Watchdog

The Financial Conduct Authority said the industry needs to start thinking about solutions to these challenges

The FTSE 100 is inching closer to its record high but can it maintain these levels?

In 1999 stock markets quickly tumbled, losing many a fortune in the process

Tax-free savings: Freedom dawns for the junior savers caught in low-income accounts

The parents of six million children stuck with low-interest saving accounts worth more than £5bn will be able to move the cash from this April. But what are their options? Samantha Downes reports

How much lower will mortgage rates go?

Another day, another cut. As lenders compete to offer the cheapest deals, Simon Read asks if borrowers should jump in now or wait for further falls

Are bills ruining your family life? Try the lover's guide to coping with debt...

If you're in the red and can't find a way out, it's time to get some help. Neasa MacErlean hears that relationships will suffer unless you are open with your partner, but there are organisations that will put you on the right track and get you talking

How to complain: From retailers to energy suppliers, it's easier than you think

When companies let us down, millions of us just take it on the chin. Simon Read shows how to make your voice heard

The dark side of debt: Descending into financial desperation is not due to self-indulgence

Three stories reveal financial desperation that was born of other, serious concerns, from being a victim of sexual assault, to losing a family member
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: HR Benefits Manager

    £40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

    Recruitment Genius: Office Manager / Financial Services

    £30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

    Jemma Gent: Year End Accountant

    £250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

    Jemma Gent: Management Accountant

    £230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

    Day In a Page

    HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

    Scientists hail daily pill that protects against HIV infection

    Breakthrough in battle against global scourge – but will the NHS pay for it?
    How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

    Time to play God

    Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
    MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

    MacGyver returns, but with a difference

    Handyman hero of classic 1980s TV series to be recast as a woman
    Tunnel renaissance: Why cities are hiding roads down in the ground

    Tunnel renaissance

    Why cities are hiding roads underground
    'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

    Boys to men

    The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
    Crufts 2015: Should foreign dogs be allowed to compete?

    Crufts 2015

    Should foreign dogs be allowed to compete?
    10 best projectors

    How to make your home cinema more cinematic: 10 best projectors

    Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
    Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

    Manchester City vs Barcelona player ratings

    Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
    Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

    Monaco: the making of Wenger

    Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
    Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

    Chris Gayle: The West Indies' enigma

    Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
    In Ukraine a dark world of hybrid warfare and murky loyalties prevails

    In Ukraine a dark world of hybrid warfare

    This war in the shadows has been going on since the fall of Mr Yanukovych
    'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

    Homage or plagiarism?

    'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
    Broadchurch ends as damp squib not even David Tennant can revive

    A damp squib not even David Tennant can revive

    Broadchurch, Series 2 finale, review
    A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

    Inside the mansion of Germany's 'Bishop of Bling'

    A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower