Guidance

Under current tax rules, a pension plan is one of the most tax-efficient ways of investing for your retirement. Here are some of the main reasons why.

You get tax relief on your payments

There's no limit on the amount that you and your employer can pay into your pension plan and, up to a certain amount, you can get the benefit of tax relief on these payments. HM Revenue & Customs (HMRC) allows tax relief of up to either £3,600 a year (if you don't pay UK income tax) or, if the amount is greater, 100% of your UK taxable earnings.

The level of tax relief you get will depend on the rate of income tax you pay. You should bear in mind that this is based on current tax laws, which may change in the future.

Your tax relief soon adds up

First, you need to decide on the total amount you want to pay into your pension plan. The amount you actually pay will be less an amount equal to the basic rate of income tax.

That is because Norwich Union will claim this back from HMRC on your behalf and add it to your plan, together with the amount you've paid. For example, if you pay £80 into your plan, HMRC will add £20 to this, so that the total invested is £100.

This is what's known as basic rate tax relief and you'll get this even if you don't pay tax. The tax relief that's added to your plan can soon add up - if you were to invest £160 each month, HMRC will add £40 a month, which adds up to a total of £4,800 in ten years, under current tax rules.

Higher rate taxpayers also benefit

If you're a higher rate taxpayer, the payments to your plan will be increased by basic rate tax relief, and you'll be able to claim higher rate tax relief on your annual self-assessment tax return.

The benefits to your pension fund

Your fund will grow free of UK income and capital gains tax. Corporation tax is payable on dividends received from UK shares.

You get an annual allowance

The Annual Allowance is an overall limit, which is £235,000 in the tax year 2008/09, rising to £255,000 by the 2010/11 tax year. If total payments from you and your employer to all your pension plans are higher than the Annual Allowance, you may be subject to a tax charge. Norwich Union only accepts payments from you that qualify for tax relief.

And you get a lifetime allowance

The Lifetime Allowance is a limit on the amount of money you can build up in all your pension plans without losing tax advantages. Any amount above this allowance will be subject to a tax charge when benefits are paid.

The Lifetime Allowance is £1,650,000 in the tax year 2008/09, rising to £1,800,000 by the 2010/11 tax year. As well as the amount you're currently building up in pension plans, the Lifetime Allowance also takes into account the cash value of any pensions already being paid to you and any tax-free lump sums you've received.

If you already have pension funds that exceed the Lifetime Allowance or you think may exceed it in future, you should talk to a financial adviser before taking out a pension.

Stakeholder Pension - your next steps

It's easy to get an instant quote and apply online for a Norwich Union Stakeholder Pension.

Or you can call us on 0800 068 6800*. Any advice given will relate only to the products sold or marketed by Norwich Union.

* Lines are open Monday to Friday 8am - 9pm, Saturday 9am - 5pm and Sunday 10am - 4pm. Calls may be recorded and/or monitored.

Personal Pension - your next steps

Find out more about how to apply for a Norwich Union Personal Pension. The first step is to talk it through with your financial adviser to make sure it's the right pension plan for you. If you don't have an adviser, you can find one in your area at:

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