4 ways to build a fortune for retirement you can really enjoy

BUI L DI NG long-term wealth to see you though retirement is an essential part of life. Without doing it, you leave yourself dependent upon a state pension that will probably not kick in until your mid to late 60s. Even then it will not be sufficient to ensure financial security.

Thankfully, we now have the tools necessary to accumulate investment wealth so that retire- ment can be enjoyed rather than endured. These tools come in the form of tax- friendly wrappers that reward long-term investing. If you adhere to our four-point plan, you will not go far wrong.

USE TAX-FRIENDLY SAVINGS WRAPPERS

FOR many people, employment is the first time they are prompted into investing for the long term. This is because employers are now required to automatically enrol most workers into a pension – a fund investing in a mix of assets, such as equities and bonds.

A pension is among the best ways to build an investment pot. Every contribution you make is boosted by the Government with tax relief. Your employer will also make payments into your pension on your behalf.

It is a long-term opportunity you cannot afford to miss, even if the contributions make a dent in the income you take home every month.

Tax is only payable on the pension fund once you take an income from it – even then a quarter of it can normally be accessed as tax-free cash.

The amount of tax relief you get on contributions depends on the rate of income tax you pay. A basic-rate taxpayer gets 20 percent and a higherrate taxpayer ,40 percent. Additional-rate taxpayers enjoy 45 per cent relief although they are now severely restricted in how much they can put in a pension.

So, a basic-rate taxpayer who puts £4,000 a year in a pension will get £1,000 of tax relief, taking their overall investment to £5,000. A higher-rate taxpayer investing the same sum will get a tax relief boost of £2,666.

An alter native or complement to a pension is an Individual Savings Account. It also allows you to build a retirement fund by investing regularly ( in everything from bonds to shares) but there is no tax relief on contributions. The attraction is that withdrawals are tax-free and can be made at any time – unlike a pension where withdrawals are taxed as income and the earliest you can gain access is age 55. A recent alternative is the Lifetime Isa – an Isa and pension hybrid. This can either be used to assemble a deposit on a home, or as a pension. Contributions get a 25 per cent bonus although these stop being paid as soon as someone hits age 50.

MAKE THE MOST OF YOUR ALLOWANCES

ALTHOUGH the Government may well make cutbacks in November’s

Autumn Statement, the current allowances for both pensions and Isas are on the generous side. So use them while they are still around.

Currently, you can invest a maximum £40,000 a tax year in a pension. This includes any payments made by your employer. For Isas, the annual allowance stands at £ 20,000 – it includes any payments you are making into a Lifetime Isa where the annual maximum is £4,000. For children, savings can be made into both a pension (maximum of £3,600 a year inclusive of £720 of tax relief) and a Junior Isa (maximum annual investment is £4.128).

START EARLY

THE earlier you start investing, the greater the chance of building wealth that will ensure a comfortable retirement – or allow you to maybe retire or semi- retire before your state pension kicks in.

Figures calculated by asset manager Old Mutual Wealth show how a combination of starting early and using tax- friendly wrappers can prove a shrewd move. For example, take someone investing £500 a month in an Individual Savings Account. Let us assume they earn £48,000 a year and so pay 40 per cent income tax.

If they start at age 40, they would build a tax-free investment by age 55 of just over £122,000. This assumes 4 per cent annual investment growth. But someone beginning at age 20 would build a fund nearly four times as big – just short of £450,000.

If they put the same amount in a pension, the higher-rate tax relief boost would mean the 40-year-old could look forward to a fund of just over £168,000 – and the 20-year-old more than £618,000.

Rachel Griffin, financial planning expert at Old Mutual, says: ‘The best way to supercharge your savings is to start as easy as possible and give your money more chance to grow.’

MONITOR YOUR MONEY

TECHNOLOGY now all ows most investors to keep a regular tab on their portfolios including any pensions. By checking online, they can take any corrective action that may be required, such as changing investments or increasing monthly contributions.

On pages four and five, we look at the best providers of online Isas and pensions while on pages six and seven we assess the investment strategies you should adopt according to your age. In general terms, the younger you are the more adventurous you can be with your investments.