When it comes to providing for our retirement, too many people are doing too little too late. Putting away even a small sum early on can make a big difference to the lifestyle you will enjoy when you retire. The golden rule for most people, is to not rely on the State alone. Modern pensions benefit from some very exceptional tax breaks, and nowadays, you can even contribute to your pension when you don’t work!

A Day: Everything’s changed!

In April 2006, the government simplified the pension contribution process, Industry insiders dubbed these sweeping changes as A-Day. So what does it actually mean?

Previously, your contributions would have been limited to a percentage of your earnings, now there’s one rule for all, which is of particular assistance to people in the 20 to 40 age bracket that may have put off investing in a pension. These groups can now put in larger sums later, instead of saving modestly, without being penalised for doing so. Remember, however, that the benefits of saving early can be substantial.

You can now invest up to 100% of your earnings, or £3,600 whichever is higher. 

However, two main limits apply:

· Annual Limit

If you pay in more than £215,000 (2006 / 2007 tax year) then you will have to pay tax on any payments over that amount.

· Lifetime Limit

If your total fund value, including every pension you hold, is worth more than £1.5 Million (2006 / 2007 tax year) when you retire, then you will have to pay tax at a punishing 55% on any value above this lifetime limit.

Any money your employer pays into your pension will count toward these limits.