@Sarenco To the extent that the benefits are taxed at the same rate as the relief, the relief is totally irrelevant, True your net contribution will grow at tax free interest but so too will the relief and that will all go to the taxman, in fact the relief is nothing more than an investment of the taxman in your pension which also grows gross of tax. It actually represents an undisclosed asset of the national finances. I remember colleagues in fat DB schemes who were going to be in the 40% tax bracket on their pension and still piled into AVCs thinking they were getting tax relief on the contributions, it was an illusion.
To the extent, and this is mostly, that the benefit is taxed at less than the relief then the relief is not a loan at all, it is a gift which does not have to be paid pack.
One can see that tax relief is in many situations in part or in full a loan but it is a loan with interest at the growth rate in the fund.
I am just correcting your terminology, not arguing with your overall thrust that pensions in general are a tax efficient savings vehicle, as the
Boss states.
Examples:
Gross Contribution 100
Tax relief 40
Net Contribution 60
Growth 100% Pension Pot 200
(1) Withdrawal as Tax Free Lump Sum; nothing paid back to Taxman, no loan involved
(2) Tax on withdrawals 40% x 200 = 80
Net benefit 120 = 2 x Net Contribution; Loan of 40 from Taxman paid back with 100% interest, of no benefit whatsoever to the contributor
(3) Tax on withdrawals 20% x 200 = 40; Half of loan paid back with full interest, half forgiven and effectively a gift. In this example, it so happens that it is the same as an interest free loan, as you only had to pay back the original amount of the relief, but this is a coincidence.
