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This page is designed to introduce you to the basic types of pensions
and from here you can click through to a form where you can apply
to receive a consultation about pensions and savings from an independent
advisor.
The basic types of pensions are Personal Pension, Occupational
Pension, Stakeholder Pension and State Pension.
Personal Pension
A personal pension is your individual pension plan that moves with
you as you change jobs. It is available to all employees who are
not members of a company scheme and to the self employed. Contributions
attract income tax relief up to maximum limits linked to a percentage
of your annual earnings. These are age related, and start at 17.5
% of earnings for anyone under 35, rising to 20 % for those aged
36 - 45, 25 % 46 - 50, 30 % 51 - 55, 35 % 56 - 60 and 40 % at 61
(subject to an earnings "cap" of £97,200 in 2002/2003).
Occupational Pension
Occupational pensions are pension schemes provided by your employer.
There are two types - final salary and money purchase.
With a final salary scheme, the employer guarantees a particular
pension on retirement, based on the employee's salary and the number
of years he has been a member of the scheme. There is no link between
the amount paid in, investment performance and the amount paid out.
The employer must contribute whatever is necessary to fund guaranteed
benefits. A good final salary OPS might provide a tax-free lump
sum of one and a half times average salary over the final three
years, plus an index-linked annual pension of 50 per cent of that
average salary.
With a money purchase OPS, contributions are invested until retirement
and this accumulated fund then provides a pension in retirement.
The amount of pension received depends on several factors - the
level of contributions, fund performance, charges and annuity rates
at retirement. The employer gives no guarantee as to the level of
pension.
Stakeholder Pension
Stakeholder pensions are designed to be simple, flexible, low-cost
personal pensions, aimed at lower and middle income earners who
are not able to join an existing occupational pension scheme. Most
employers who don't already have a pension scheme have to offer
access to them, although they are fully portable – i.e. they
belong to the individual investor and move with them from job to
job, rather than the individual having to be a member of each company’s
group pension scheme.
You can stop and start payments without penalty and continue to
make contributions whilst you are not working. Stakeholder pensions
can also be transferred from one provider to another at any time
without charge, and plan holders can take a career break of up to
five years and continue paying into their stakeholder plans on the
basis of their former earnings. They are low cost with no start
up charge and annual management fees be ‘capped’ at 1
per cent. Minimum contributions are also lower than most standard
personal pensions, set at £20 for lump sum as well as monthly
savings, and employees are eligible to join employer sponsored stakeholder
schemes after only three months in a job.
Anyone under 75 can put a total of £3,600 per year into stakeholder
pensions, unless they are already a member of a company scheme and
earning over £30,000 a year or are a company director. Stakeholder
plans can also be set up on behalf of children and non-working spouses.
Individuals can only have one stakeholder plan, but there are no
restrictions on who can pay into a stakeholder pension – e.g.
husbands can contribute to their wife’s plan, grandparents
to their grandchildren’s and so on. Higher contributions can
be made, subject to the personal pension earnings limits (see personal
pensions), and stakeholder pensions can be used to ‘contract
out’ of the state second pension scheme, in the same way as
a personal pension.
State Pension
At present, the State will provide you with a pension in retirement
if you pay, are treated as having paid, or are credited by the Government
with National Insurance contributions. You cannot leave the basic
State pension.It is not an invested scheme: this means that the
workforce paying into the pension pot now, are funding the people
currently receiving pensions. Demographics clearly show that with
an ageing population, life expectancy in retirement increasing and
a decreasing workforce contributing to the pension pot, the cost
of providing pensions for all is unlikely to be sustainable. It
is therefore vital that each of us does not rely on the State pension
for our retirement planning but plan for our own retirement through
a stakeholder, personal or company pension.
For a free discussion about pensions
and savings with an independent advisor click here
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