Pensions
Pensions are designed to enable you to save sufficient money during your working life to provide an income stream for you to live comfortably after you have retired.
Different types of Pensions
Pensions are designed to enable you to save sufficient money during your working life to provide an income stream for you to live comfortably after you have retired.
State Pensions may not produce the same level of income that you will have been accustomed to whilst working. It’s important to start thinking early about how best to build up an additional retirement fund. You’re never too young to start a pension – the longer you delay, the more you will have to pay in to build up a decent fund in later life.
Whether you require advice on a personal pension or a workplace scheme for your business we arrange bespoke solutions for our clients, providing a tailored one-to-one advisory service, delivered face-to-face or remotely, depending on what suits you.
An Occuptional Pension
Personal Pension Schemes
Single Tier State Pension
Retirement Options
Self-Invested Personal Pensions (SIPPs)
Personal & Stakeholder Pensions
An Occuptional Pension
An occupational pension through an employer’s pension scheme – This could be a final salary scheme (referred to as defined benefit) or a money purchase scheme (usually referred to as defined contribution). Pensions deriving from final salary schemes are usually based on your years of service and final salary multiplied by an accrual rate, commonly 60ths. The benefits from a money purchase scheme are based on the amount of contributions paid in and how well the investments in the scheme perform.
Personal Pension Schemes
Personal pensions schemes including stakeholder schemes – these are also money purchase schemes and are open to everyone and especially useful if you are self-employed, just for topping up existing arrangements. From October 2012, all employers now have to offer their employees, who meet certain criteria, automatic enrolment into a workplace pension.
Single Tier State Pension
The new State Pension is a regular payment from the government that you can claim if you have reached State Pension Age (SPA) on or after 6 April 2016. Other arrangements applied prior to that date.
You’ll be able to get the new State Pension if you are eligible and:
- a man born on or after 6 April 1951
- a woman born on or after 6 April 1953
- If you reached State Pension age before 6 April 2016, you’d get the State Pension under the Basic State Pension and Additional State benefits headers as shown below.
- The full new State Pension is £168.60 per week (2019/2020). Your National Insurance record is used to calculate your new State Pension. You’ll usually need 10 qualifying years to get any new State Pension, 35 qualifying years for the full amount.
The amount you get can be higher or lower depending on your National Insurance record.
The basic State Pension applies to people whose State Pension Age falls before 6th April 2016, for people who have paid sufficient National Insurance Contributions while at work or have been credited with enough contributions. **
Additional State Pension (as above) – referred to as the State Second Pension (S2P) but before 6 April 2002, it was known as the State Earnings Related Pension Scheme (SERPS). From 6 April 2002, S2P was reformed to provide a more generous additional State Pension for low and moderate earners, carers and people with a long-term illness or disability and is based upon earnings on which standard rate Class 1 National Insurance Contributions are paid or treated as having been paid. Additional State Pension is not available in respect of self-employed income.
From April 2016, both the basic State Pension and Additional State Pension were combined to offer a simple single tier flat rate pension. **
** For those who have reached State Pension Age on or after 6th April 2016, these no longer apply.
Retirement Options
There are now a vast array of different products that may be used at retirement to provide benefits, from the traditional form of annuity that provides a regular income stream to Flexi-access Drawdown which enables lump sums of benefits to be taken either as a one-off payment or over a given number of years. Given the complexity and choice all individuals now have, it is important to seek independent financial advice before making any decisions.
Self-Invested Personal Pensions (SIPPs)
A Self-Invested Personal Pension (SIPP) is a tax-efficient wrapper within which a wide range of investments can be held. SIPPs have the same tax benefits and regulations as conventional personal pension plans but have control over the investment choice – each SIPP is unique to the individual. Otherwise, it operates in the same way as a conventional personal pension in respect of contributions and eligibility, for tax purposes. A SIPP must appoint a scheme administrator, usually the recognised product provider.
The complex nature of a SIPP means that it is not suitable for all investors. Often, the benefits of ‘self-investment’ are only advantageous to people with very large funds and/or investors with some level of sophistication when it comes to investment decisions. Often, there are additional charges for arranging and dealing within a SIPP and these charges would erode smaller funds quickly.
The benefits of using a SIPP include being able to invest in:
- Stocks and shares listed or dealt on an Inland Revenue recognised stock exchange, including AIM
- Stock exchanges that are not recognised by HMRC
- Unit trusts, Open Ended Investment Companies (OEICs)
- Warrants, covered warrants
- Government stock and fixed interest stock
- Unquoted shares
- Commercial property
- Property funds.
We will be able to provide more details and make a recommendation based on your circumstances.
Personal & Stakeholder Pensions
Personal Pensions represent a popular and attractive way of saving for your retirement.
All monies invested into your fund grow free of Capital Gains Tax, and the contributions you make are enhanced by Income Tax relief at source. For example, if you invest £80, the government adds on tax relief (currently 20%) to enhance your contribution to £100. If you are a higher rate taxpayer, you can claim additional relief through your PAYE coding. An Annual Allowance of up to £40,000 is available as well as the possibility of utilising potential carry forward of unused Annual Allowances.
A personal pension is an arrangement made in your name over which you have personal control. You can alter your contributions, suspend them, or stop them completely. Contributions are restricted to £4,000 under these plans where an individual has already flexibly accessed any income under another money purchase plan.
You will be eligible to take 25% of your accumulated fund tax-free when you retire, the earliest age being from 55. There are a range of options when you decide to take benefits such as purchasing an annuity or electing capped or flexible drawdown.
Personal Pensions usually offer a range of investment mediums to suit your attitude to investment risk, and you can change your investment at any time.
Stakeholder pensions are similar to personal pensions, but have their charges capped at 1.5% for the first 10 years, reducing to 1% thereafter. Whilst stakeholders are generally considered a little cheaper than personal pensions, investment choices may be restricted.
*THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE TAXATION ADVICE.
Pensions are a long-term investment. You may get back less than you put in. Pensions can be and are subject to tax and regulatory change; therefore, the tax treatment of pension benefits can and may change in the future.Past performance should not be taken as a guide to future performance. The underlying value of investments, and the income from them, can go down as well as up, and you may not recover the full amount of your original investment.
Your options at retirement
From age 55, there are a number of options available to you including:
- The ability to draw your benefits available from the existing provider
- Purchase an annuity with a different provider on the open market, this could potentially increase the payments to you
- Transfer to Flexi-access Drawdown (or a third way plan)
- Use the Uncrystallised Fund Pension Lump Sum (UFPLS) rules
- Transfer to phased retirement
- Transfer the full amount to any/a combination of the above
- Undertake a partial transfer to any/a combination of the above
Auto Enrolement
In the past, many employees may have missed out on valuable pension benefits, either because they didn’t join their company’s pension scheme or their employer didn’t offer them a pension.
This was changed by the introduction of auto-enrolment which makes it compulsory for employers to enrol eligible employees into a pension scheme and to pay a minimum contribution into it.
Auto-enrolment was phased in from 2012 and all eligible employees should have been enrolled by 1 February 2018.
How much do I and my employer have to pay?
The government has set minimum levels of contributions that must be paid to the workplace pension scheme by you and/or your employer.
Your employer must pay some of the minimum total contribution. If your employer doesn’t pay all the minimum total contribution, you will need to make up some of the difference. Your employer will tell you how much you need to pay.
Through tax relief on your contributions, the government will effectively also be paying into your pension pot. Even if you don’t pay Income Tax, you’ll still get tax relief if your pension scheme uses tax relief at source.
The minimum total contribution to the scheme is usually based on your ‘qualifying earnings’. These are your earnings from employment, before Income Tax and National Insurance contributions are deducted, that fall between a lower and upper earnings limit that are set by the government.
If your employer decides to pay only the minimum amount, the minimum total contribution, as a percentage of your qualifying earnings is:
Date | Your employer pays: | You pay: | The Government adds tax relief of: | Total contribution: |
From 6th April 2019 | 3.0% of your qualifying earnings | 4.0% of your qualifying earnings | 1.0% of your qualifying earnings | 8.0% of your qualifying earnings |
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