IT is over a year since the government overhauled the pension rules but many advisers and investors are only beginning to wake up to the ways to boost your pension that have become possible under the new regime.

Fancy giving your fund a 150% lift by claiming two lots of tax relief, or borrowing money using your pension? Both have become easier under the new regime introduced on April 6 last year.

Here we explain five clever but little-known strategies that you can now use to jump-start your retirement fund.

Borrow to invest

Until last year, it was only possible to use a self-invested personal pension (Sipp) to borrow money to buy a commercial property. This was a big attraction for people who ran their own firms but rarely used by anyone else.

Now you can take out a loan of up to 50% of the value of your fund and invest in any eligible pension investments, including shares, unit trusts and bullion.

Stockbroker Killik and Hotbed, a private-investor syndicate, are about to launch Sipps which include a borrowing facility as part of the deal. These could prove particularly useful to those who want to give their pensions a late boost before they retire, although it is high risk.

Malcolm Cuthbert at Killik said: “If you use the loan to buy investments that subsequently plunge in value you could be forced to sell your entire fund to cover the losses.”

Killik and Hotbed’s loan is provided by Bank of Scotland, has a seven-year term and interest is charged at 1.65% above Bank rate – meaning it charges a competitive 7.4%.

If you borrowed £100,000 at 7.4% over seven years, at the end of the term you would have paid back £128,400. But if you invested the loan in shares that grow an average of 7% a year, it would be worth £160,500 seven years later – £32,100 more.

Employee share pensions

Almost 6m people are saving into employee share schemes, which enable them to invest in their company’s shares at a discount. Under the new rules, you can put these shares into a pension if you take out a Sipp alongside a company scheme.

The strategy is one of the outstanding perks of the new pensions regime as it lets you reclaim an incredible 156% in tax relief.

The idea centres on investing in an employee equity scheme such as a share incentive plan or a save-as-you-earn (SAYE) scheme. Incentive plans allow you to buy company shares from your pretax salary using up to £1,500 or 10% of your income a year, whichever is lower.

Ignoring any increase in value, a £1,500 contribution costs a high-rate taxpayer only £885 with income tax and National Insurance relief. After five years you can sell the shares free from capital-gains tax (CGT), then place the proceeds in a pension, thereby claiming tax relief on the contribution.

The government pays 22p for every 78p you invest in a pension, taking the total contribution to £1. So £1,500 is immediately boosted to £1,923.

Higher-rate payers get a further 18p via their tax return, or £346 in this case. So a contribution costing £885 is turned into £2,269 – a 156% uplift.

Employees in SAYE or Share-save schemes can also benefit from double tax relief using this strategy. Once they have transferred their shares into the Sipp, they can be sold tax free.

Sacrifice your salary

Another way to boost your pension is salary sacrifice. You give up some of your salary or bonus and your employer pays the shortfall into your pension and you benefit from tax relief on the contributions. Your firm also saves money as pension contributions paid by an employer are free from National Insurance contributions (Nics).

The appeal of salary sacrifice will increase next April, when anyone who earns more than about £35,000 will see a rise in NI, but this hike can be offset using salary sacrifice. If you are smart you can increase your pension contributions without any change to take-home pay.

Someone earning £40,000 and contributing £1,200 a year to a pension, after tax relief – an individual contribution of £936 – would pay Nics of £3,799 from April compared with £3,312 this year. After paying income tax of £6,913, their total take-home pay would be £28,352.

He or she could take a cut in salary to £38,643 and let the company contribute the money it saves – £1,530 a year – to the pension scheme. The worker would now pay £3,650 in Nics and £6,641 in income tax – a saving of £420 a year – and overall take-home pay will remain the same at £28,352.

Reducing your salary can cause problems if you want to take out a mortgage, however.

Avoid lifetime cap

Insurers are dreaming up clever ways to help investors with large pension funds avoid the cap on pension funds. Called the lifetime allowance, it is £1.6m this year and rises to £1.8m by 2010.

If you breach this there is a 25% tax, called the “recovery charge”, on any amount above the lifetime allowance. So if your fund was worth £1.7m and the cap were £1.6m you would pay 25% on the difference of £100,000 – £25,000.

Aegon offers a scheme, run by Barclays, that guarantees a fixed return, provided the FTSE All-Share index is up over the three-or five-year term – so you know how much your fund will grow.

Last-minute boost

You can put an amount equivalent to your salary in your pension each year, up to £225,000. But there is no limit on contributions in the year before retirement. At that point, you get tax relief on contributions of 100% of salary, no matter how big that is, boosting your retirement fund.

ATTRACTED TO FREEDOM OF SIPPS

CHRISTOPHER Holdsworth Hunt from Kensington in west London is keen to take advantage of the chance to borrow within his pension.

Although 65, he doesn’t need to draw on his pension for income as he can rely on other assets as well as the income he receives from several nonexecutive directorships.

The businessman – he co-founded financial firm Peel Hunt – plans to open a Hotbed self-invested personal pension (Sipp). From this week it will have a borrowing option.

He plans to use the money raised to invest in private-equity deals, which are risky but can make investors huge profits.

He said: ‘The key attraction of Sipps is that they give you greater freedom of investment. The ability to borrow opens up even more investment opportunities.’

Times Recommends

• How to sell your home in a downturn
• How to boost your spending power
• Unemployment benefits explained