How to optimise your Pillar 2 buybacks
Utilising Pillar 2 buybacks to invest for your future is one of the most effective strategies you have at your disposal and is often overlooked. Whether you are self employed, an employee or business owner you can benefit from voluntary Pillar 2 contributions as they are exempt from income tax. So with this in mind it is a very efficient way to save your retirement and reduce your income tax liabilities each year.
Simple and effective
The concept of Pillar 2 buybacks is to allow the member to make additional contributions and fill any void created by missed contributions. These voids can be caused by many reasons such as a change of employer, unemployment or fluctuations in salary. Pillar 2 buybacks can be made either as a one off or regular contributions depending on your circumstances and affordability.
Your pension provider can inform you how much you are entitled to currently buyback. It should also be displayed on your most recent statement.
When to utilise Pillar 2 buybacks
If you are able to buyback a considerable amount, it is generally more tax efficient to spread your buybacks over several years rather than as a one off. Doing this also spreads the investment over a period of time ensuring you also have sufficient emergency cash reserves and do not tie up all available capital in your pension. Remember you can only access this capital should you use it to buy a property, start a business or retire. If you are likely to need capital in the near term then perhaps consider a more flexible option such as an investment account.
The three year rule
Any Pillar 2 buyback is locked away for a period of three years. So if you are planning on using your second pillar to buy your home the following year or are about to retire you may wish to consider not making additional contributions.
Need some additional help?
Retirement planning and structuring the right plan for you and your family can be extremely challenging. If you would like some guidance on this matter or any other aspect of your financial planning please do feel free to contact us. Our team will be delighted to assist you.
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