Money: Where saving is once and for all

Single-premium pensions make sense, says Harvey Jones

There is still time in this financial year to get full tax relief on personal pension contributions - even if you haven't yet set up a policy. A pension plan taken out before 5 April allows you to take advantage of this year's unused tax relief and to mop up the allowance from previous years as well.

To get the tax break you have to buy a "single premium" plan. This is a flexible and increasingly popular alternative to a monthly premium pension. These policies have particular advantages for the self-employed, those with irregular income or people who receive an annual bonus, says Andrew Bedford, marketing director of Financial Options Group, a network of independent financial advice firms.

"If you earn pounds 20,000 most years but sometimes earn pounds 50,000, you may wish to pay a one-off extra contribution," he says. "This will allow you to increase your overall pension pot and make sure you are using as much of your available tax relief as possible."

The Inland Revenue allows tax relief on personal pension contributions at your highest tax rate, whether you pay a lump sum or regular premium. If your limit has not been reached, you can contribute up to a set percentage of your net relevant earnings. This limit is 17.5 per cent for people under 35 and rises to a maximum of 40 per cent. If you have the money, you can pay above that and still get tax relief by claiming any unused relief from up to six years ago, providing you do not pay in more than the equivalent of your annual income.

Mr Bedford says: "A problem is that if money is tight one year, you might be tempted to skip a payment. Monthly payments are less hassle and it feels less painful paying pounds 200 a month than pounds 2,400 a year."

On the other hand, Adam Norris, managing director at Hargreaves Lansdown Pensions Direct, says single premium pension plans have the benefit of being cheaper. "The average single premium is around pounds 3,000. This payment is cheaper to administer than a monthly contribution of pounds 50, so you save money," he says.

And unlike many regular premium plans, single premium pensions are not hit by the "front-end loading" of financial advisers' commission (see jargon-busting box). These charges can wipe out huge chunks of your pension contributions in the early years, hitting performance all down the line.

Pension company charges and IFAs' commission (which alone costs between 5 to 8 per cent of your contributions) have drawn much criticism. The commission element can be saved by purchasing your pension through a discount house.

Hargreaves Lansdown rebates 80 per cent of the initial commission paid to IFAs if you buy without advice (on an "execution-only" basis). This discount could put an extra pounds 100 or more into your pension on a lump sum of pounds 1,000, compared to going through a fee-based IFA. TQ Direct Choice offers a similar service.

Hargreaves Lansdown recommends five pensions houses. They are: CGU, Royal & SunAlliance, Scottish Widows, Skandia and Standard Life.

Mark Birks, pensions marketing manager with Royal & SunAlliance, says single premium plans are enjoying a surge in popularity for several reasons. One is the fear that Labour will reduce the tax relief available on premiums for higher rate payers, so people are using up the allowances just in case. The uncertain labour market and growth in short-term contract working has also dissuaded many from making regular pension commitments and only paying in when they know they have the cash.

Discount pensions: Hargreaves Lansdown, 0117-980 9926; TQ Direct Choice, 0800 413186. Providers: CGU, 0500 100200; Royal & Sun Alliance, 0800 300880; Scottish Widows, 0345 697567; Skandia, 01703 334411; Standard Life, 0845 6060100.

Start your day with The Independent, sign up for daily news emails
Life and Style
Baroness Lane-Fox warned that large companies such as have become so powerful that governments and regulators are left behind
techTech giants have left governments and regulators behind
News
Keith Fraser says we should give Isis sympathises free flights to join Isis (AFP)
news
Life and Style
'Prison Architect' players decide the fate of inmates
tech
Life and Style
A picture taken on February 11, 2014 at people walking at sunrise on the Trocadero Esplanade, also known as the Parvis des droits de l'homme (Parvis of Human Rights), in front of the Eiffel Tower in Paris.
techGoogle celebrates Paris's iconic landmark, which opened to the public 126 years ago today
News
Cleopatra the tortoise suffers from a painful disease that causes her shell to disintegrate; her new prosthetic one has been custom-made for her using 3D printing technology
newsCleopatra had been suffering from 'pyramiding'
News
people
Arts and Entertainment
Coachella and Lollapalooza festivals have both listed the selfie stick devices as “prohibited items”
music
Sport
Nigel Owens was targeted on Twitter because of his sexuality during the Six Nations finale between England and France earlier this month
rugbyReferee Nigel Owens on coming out, and homophobic Twitter abuse
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
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.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Trainee Consultant - Surrey / South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Ashdown Group: Trainee Consultant - Surrey/ South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Recruitment Genius: Client Services Assistant

£18000 - £20000 per annum: Recruitment Genius: A Client Services Assistant is ...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Day In a Page

No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor