With the decline in final salary pension schemes and the switch to defined contribution or stakeholder pensions, the onus for having a decent fund at retirement now rests firmly with the individual employee. So how do you amass the funds required to retire before you're 90 and still maintain a decent standard of living?



A pension still has its place at the center of a retirement savings plan, especially if the employer contributes to the scheme. Getting something for nothing is always a bonus, no matter how much they contribute. An extra 5% employer contribution can make all the difference to the size of the final fund. In addition, there are several advantages to saving in a pension.

Pension contributions attract tax relief at your highest rate of tax, so a 40% taxpayer will really see a boost in their fund compared to the amount saved. The difference between basic rate and higher rate tax is reclaimed through self-assessment. Non-taxpayers can also benefit as they receive basic rate tax relief on their contributions. So to achieve a gross contribution of ?3,600 will only actually require an investment of ?2,808.

Limits on contributions are generous, with the option to pay in up to 100% of your salary available. This is subject to a cap in this tax year of ?225,000, an amount which few people are going to trouble.

The fund then grows to retirement when you can take a tax free cash lump sum of up to 25% of the pot. Funds can't be withdrawn earlier but this isn't a bad thing, particularly for those of us who lack discipline!

On the downside, at retirement when an income is taken, it is subject to income tax. Like the contributions it is at your highest rate.

To boost the coffers further and if you don't want all your funds in a pension then why not consider investing in an ISA? Saving in a cash ISA is possible but the only return will be the interest it generates. Over the longer term, a shares ISA should offer higher returns as there is the opportunity for capital gains. A current maximum investment of ?7,000 per year can still produce a decent sized fund.

Whilst not attracting tax relief on contributions, there are advantages when withdrawing amounts from the funds.

The pot built up at retirement can be held and invested in income funds that will pay dividends to provide an income. Given the range of funds available this option offers great flexibility over and above purchasing an annuity.

Alternatively if you require a capital amount this can be withdrawn free of capital gains tax. Also the shares/units do not need to be cashed in all at once and so the withdrawals can be staggered to provide monies as required.

So if you want to build a retirement pot and finish work before you're 90, then investing in a pension (ideally with employer contributions) and a shares ISA, could provide the necessary balance of flexibility and tax reliefs.