Tax efficient vehicles do not offer a magical solution to investment performance. What they do offer is a shelter from income tax, capital gains tax or both. If you run your own pension plan or ISA then you can invest in most asset classes and the returns will be enhanced due to the tax breaks.
Given the cuts to the state pension, your private scheme or plan is likely to be your most important investment. You can invest in a company scheme and/or a personal plan.
Contributions qualify for full tax relief and the fund grows virtually tax free. Part of the fund can be taken as tax free cash at retirement while the pension itself is subject to your marginal rate of tax.
Pension contribution limits changed significantly on 6th April 2006.
Replaced Personal Equity Plans (PEPs) and Tax Exempt Special Savings Accounts (TESSAs) in April 1999. The annual investment limit is £7,200 (rising to £10,200 for over-50s in October 2009, and for everyone else in April 2010). This product is intended primarily for equity investment but you can include up to £3,600 (£5,100 from October/April) in deposits.
The fund grows virtually tax free and you can sell equities at any time, although accounts which do not qualify for the government's fair terms "cat mark" (abolished in April 2005) may impose early termination penalties.
You can invest up to £30,000 a year in FIS Certificates, which are tax free.
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