How you could retire early: Mr Lund’s story

Many of us dream of an early retirement, and for most of us it’s what gets us through the 9-5 grind. Whether you’re looking forward to an around the world trip, or finally starting that hobby you never had time for, it’s working out how to turn your dream into a reality that’s the issue.

An early retirement doesn’t mean you’ll never work another day in your life (unless you want it to). It could just mean you no longer work to live, and you’re finally able to afford the things you’ve always wanted without an income paid by your employer.

We spoke to Mr Lund to find out how he used the benefits of tax relief and his HL SIPP to help him retire at 55.

This article is not personal advice. If you’re unsure what’s right for you, please seek advice. Remember tax rules can change and benefits depend on your circumstances.

“Investing in a SIPP helped me do one primary thing – retire at 55.

Always conscious that contributing to a personal pension (like the HL SIPP) was a very good thing to do, I quickly realised that with some proper planning I could reach my dream of an early retirement.

I started investing in a SIPP in 2011 because of the wide investment choice. In my previous pension scheme, I was only able to invest in 12 funds and no shares.

I pay money into my SIPP every year to make the most of available tax relief. When I was working full time I used to contribute up to my earnings as much as I could because I’d get 40% back from the government. You’d be silly not to if you had the spare money to pay in – where else could you make so much guaranteed interest?

Even as a non-earner I still benefit from tax relief. I pay in £2,880 as early as I can at the start of the tax year- then the tax man reinstates the total to £3,600. I use the £720 difference to cover insurance and road tax costs.

A SIPP is one of the most tax efficient ways I could have saved for retirement. I’m now three years into my early retirement dream – and am fully in control of my life and it feels good!”

Pension Tax Relief – act by 5 April

It sounds obvious but the more you pay into your pension, usually the more chance you’ll have of retiring on your own terms.

To encourage you to save more into your pension, the government will pay 20% in basic-rate tax relief on what you add in. For example, if you pay £8,000 into your pension, the government will add £2,000. And if you pay a higher rate of tax you can claim back up to a further 25% through your tax return. If you’re a Scottish tax payer different tax rates and bands apply.

Any UK resident under the age of 75 has the right to tax relief – even if you don't pay tax. The general rule is that you can usually add as much as you earn and receive tax relief every year. Or if you're a non-earner, you can pay in up to £3,600 after tax relief has been added. So if you add £2,880 to your pension, the government would boost it by £720. There’s also an annual allowance (£40,000 for most people) which limits what can be paid in.

So, if you want to make the most of this benefit this tax year, and improve your chances of retiring early, you could consider maximising how much you pay into your pension.

Remember, money in a pension isn’t usually accessible until age 55 (rising to 57 in 2028). All investments can go down as well as up in value, so you could get back less than you put in.

MORE ON PAYING INTO A PENSION

To find out how much tax relief you could claim this tax year, try our tax relief calculator

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