Pensions

When it comes to providing for our retirement, too many people are doing too little too late.

Putting away even a small sum early on can make a big difference to the lifestyle you will
enjoy when you retire. The golden rule for most people is not to rely on the state alone.
Modern pensions benet from some exceptional tax breaks, and nowadays, you can even
contribute to your pension when you don’t work! With new legislation being introduced by
the Government this year, you will also have more options as to how you receive your
pension money in retirement.

The value of your investment can go down as well as up and you may not get back the full
amount you have invested.

A stakeholder pension plan (SHP) is a type of
dened contribution arrangement. It is essentially an
investment policy that provides an income in
retirement.

It is available to any UK resident who is under 75 years of age and can be bought from
insurance companies, high street banks, investment organisations and some retailers (i.e.
supermarkets and high street shops).

The policyholder contributes to the plan, the money is invested and a fund is built up. The
amount of pension payable when the policyholder retires is dependent upon:

  • the amount of money paid into the scheme
  • how well the investment funds perform
  • the ‘annuity rate’ at the date of retirement. An annuity rate is the factor used to convert
  • the ‘pot of money’ into a pension

The policyholder can retire at any age after 55 (subject to plan restrictions). When the
policyholder does retire, they can generally take up to 25% of the value of their fund as a
tax-free lump sum. The remainder of the fund can be used to buy an annuity with an
insurance company.

A SHP differs from a personal pension plan because it has been designed to incorporate a
set of minimum standards laid down by the Government. These include:

  • a charging structure that is capped at a maximum of 1.5% a year for the rst 10 years
    and 1% a year thereafter;
  • there can be no penalties on altering or stopping contributions or on transferring the
  • benets to another scheme; and
    providers may only refuse to accept contributions if they are less than £20

Stakeholder Pension

Personal Pension

Thinking of moving home?

Personal pension plans (PPPs) and stakeholder
pension schemes (SHPs) are dened contribution
arrangements.
They are essentially in

vestment policies that provide an income in retirement. They are
available to any UK resident and can be bought from insurance companies, high street
banks, investment organisations and some retailers (i.e. supermarkets and high street
shops).

Policyholders contribute to their plan, the money is invested and a fund is built up. The
amount of pension payable when the policyholder retires is dependent upon:

  • the amount of money paid into the scheme;
  • how well the investment funds perform; and
  • the ‘annuity rate’ at the date of retirement. An annuity rate is the factor used to convert
  • the ‘pot of money’ into a pension.

The policyholder can normally retire at any age after 55 (subject to plan restrictions).

When the policyholder does retire, they can generally take up to 25% of the value of their
fund as a tax-free lump sum. The remainder of the fund can be used to buy an annuity with
an insurance company

SIPP

A SIPP (Self Invested Personal Pension) is a personal
pension which allows the member a much broader
range of investments compared to a traditional
Personal Pension.

Some of the examples of the exciting investment opportunities today’s discerning investor
may want to access include commercial property, land, overseas property funds, residential
property funds, quoted and unquoted shares, trusts, unit trusts and OEICs

As well as having excellent investment freedom a SIPP still maintains the signicant tax
advantages of a pension, with full tax relief on contributions.

A SIPP also offers much greater exibility in the way benets may be taken in retirement. Up
to 25% of the value of your SIPP investments can be taken as a tax free cash sum whilst the
remainder remains invested.

At retirement, you have a number of choices. You can draw income from your invested fund,
known as income drawdown, buy an annuity, or have a combination of phased retirement
and income drawdown.

Please note that SIPP pensions generally have higher charges than traditional pension
schemes. You should take note of these so you are prepared for the costs.

SIPP

This new government backed scheme allows buyers to either take their first steps on the property ladder, or move up the ladder, with only a 5% deposit.

The government has introduced a new law to make
it easier for people to save for their retirement.

It requires all employers to enrol their workers into a qualifying workplace scheme if they are
not already in one. At present, many workers fail to take up valuable pension benets
because they do not make an application to join their employer’s scheme. Automatic
enrolment is meant to overcome this.

Auto Enrolment