Once you factor in life’s typical expenses such as rent or mortgage payments, transport, and bills, saving for retirement can be a challenge. As such, it can make sense to act quickly when the government is offering you free money to put towards your retirement savings.
With that in mind, today I’ll be discussing two ways in which savers can pick up money for free for their retirement savings. Both are easy ways to boost your savings.
Let’s start with the SIPP (Self-Invested Personal Pension). This is a government-approved personal pension product that is available through a number of providers and enables you to manage your own retirement savings from a broad range of investments.
One key advantage of the SIPP is that it comes with what’s referred to as ‘tax relief’. Forget the jargon term, this essentially means that the government will top up any money you contribute into your account.
The SIPP top-ups that you receive from the government will depend on your personal tax rate. Generally speaking, those paying 20% income tax (basic-rate taxpayers) will enjoy tax relief of 20% on their contributions, meaning that an £800 contribution will be topped up automatically to £1,000 by HMRC. Those paying higher levels of income tax will enjoy even higher levels of tax relief (potentially up to 46%) but part of this will need to be claimed back via a tax return.
There are limits as to how much can be put into a SIPP on an annual basis and there are also restrictions as to when and how you can access your money when you retire. Savers should be aware of these limits and restrictions before investing. Overall, however, given the free money on offer in the form of tax relief, the SIPP is a highly effective retirement savings vehicle.
Another easy way to pick up free money for your retirement savings is through the Lifetime ISA. This is a tax-efficient savings vehicle open to those aged 18 to 39 who are either saving for retirement or for their first house.
The beauty of the Lifetime ISA compared to other ISAs is that any contributions made into the account before you turn 50 are topped up 25% by the government. In other words, if you contribute £1,000, you’ll receive a £250 bonus, taking your total contribution to £1,250. That’s certainly a generous offer.
Of course, there are restrictions here and the annual Lifetime ISA allowance is just £4,000, meaning the maximum bonus you can pick up per year is £1,000. The money also cannot be touched until you turn 60 (or buy your first home) without harsh penalties.
The Lifetime ISA seems to be frequently criticised due to the fact it’s more complicated than other ISAs, yet in my view, it’s a fantastic savings vehicle that can really turbocharge your retirement savings. If this ISA does interest you, you’ll have to act quickly if you want to claim this year’s bonus money as Friday is ISA deadline day.
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