Other Pension Tax Benefits
National Insurance - If your employer is good enough to contribute to a pension scheme for you, it is generally not treated as a Benefit in Kind for income tax or National Insurance purposes. Therefore, no additional income tax or National Insurance is paid.
Tax Free Cash - Most pension funds are able, on retirement, to pay out a lump sum which is TAX FREE. Again, this is another valuable benefit to the saver. This is for most pension funds a maximum of 25% of the fund value after 6 April 2006 although some pension funds with higher tax free cash entitlements achieved before 6 April 2006 may have protected your higher tax free cash amounts.
Tax Privileged Growth - Pensions are an ideal way to save for the long term. The funds' growth is virtually tax free, i.e. the funds do not have to pay any capital gains taxes on any gains on assets held by the funds. Also, it is currently only partially taxed on income derived from assets held by the pension fund. This results in a pension fund being a very tax efficient way to save.
Death Tax - Inheritance Tax - It is normal for most pension schemes to be established under "discretionary powers". The result is that on death any lump sum or pension will be paid out with no liability to the 40% Inheritance Tax on death. Again, another reason for saving using pensions. As part of the Pension Simplification laws that started 6 April, 2006 - a new option in retirement for over 75 year olds called Alternatively Secured Pensions may be subject to Inheritance Taxes.