Tips to beat inflation

Delay pension contributions

This might sound counter-intuitive but it can be a valuable financial planning tactic in certain circumstances. There is a general misconception that retirement planning means paying money into a pension.

A pension is simply a tax-advantaged investment wrapper. Indeed, for tax efficiency and flexibility, it is often best to hold a mixture of pensions, ISAs, cash and other investments at retirement.

Pension contributions attract tax-relief at your marginal rate but are then taxed when you draw benefits. For higher rate taxpayers, a £60 net pension contribution will be 'grossed up' to £100 with the benefit of 40 per cent tax relief.

For higher rate taxpayers this actually means an immediate 66 per cent enhancement on your investment.

For those who do not pay higher rate tax, there is an advantage in making any additional savings into an ISA. Like a pension, the money can be invested into equities which, over the longer term should out-perform cash and fixed interest assets, but at retirement, the fund can be converted to fixed interest and any income would be tax-free.

If you are a basic rate tax payer now but feel that you are likely to become a higher rate tax payer in the relatively near future, why not consider delaying contributions until you can obtain higher rate tax relief.

Open a SIPP for tax efficient savings

Self Invested Personal Pensions (SIPPs) have been one of the success stories of pension planning in the last decade.

Matt Ward, from financial research company Defaqto, says: 'Their ability to facilitate pensions savings, consolidation and income requirements with access to a broad range of investment options will continue to meet the needs of IFAs and clients for many years to come.

'The fact that they are forming a key component within adviser platforms also ensures that they are embedded into the future of distribution in the UK.'

If you are a higher rate tax payer, opening a SIPP offers excellent tax breaks and a flexible way to save for retirement without suffering too much from inflationary pressure.

There are two basic ways you can start a SIPP: new contributions (such as monthly payments and one-off lump sums) which attract tax relief at up to 40 per cent; while transfers from other pensions allow investors to move away from outdated pension arrangements with limited investment options and poor customer service. Since April 2006 almost everyone is eligible.

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