<a href=http://moneyandme.co.uk/stakeholder-pensions.html>Stakeholder pension</a> rules are changing in April 2010, please be aware of these changes as they can have a serious impact on you if you are intending to retire in the near future.
The government is raising the age you can access your
<a href=http://moneyandme.co.uk/stakeholder-pensions.html>stakeholder pension</a> fund from 50 to 55 in April so if you are in the age bracket of 50-55 and thinking of retirement soon then please act know.
You should speak with <a href=http://moneyandme.co.uk/stakeholder-pensions.html>financial advisor</a> about the options that are available to you before the deadline approaches if you are considering retirement.
After April you will only be able to access your pension at age 55 unless you have good reason to access it earlier such as medical grounds.
The tax free lump sum you can draw from your pension between these ages is the same as when you reach 65, so you can access 25% of the fund as a tax free lump sum now.
Stakeholder pensions were introduced on 6th April 2001 and are designed with the lower paid individuals in society in mind. The Government had the idea that if they made pension saving more accessible and more transparent (you can tell what you are being charged) more people would be encouraged to save towards their retirement and thus reduce the number of people past retirement age drawing social security benefits from the State.
All information contained within this opinion is factually correct as at 6th April 2004, however it should be noted that in this ever changing world, contribution limits, charging structures and tax treatment may differ in future years.
No part of this opinion should be treated as financial advice and if you are unsure as to any of the points raised or think you may be affected by the information contained you should seek independent financial advice.
The chances are that if you have membership of a pension scheme via your employer it will be either one of the following (or at times a mixture). A defined benefit arrangement (based upon your service and a defined salary), defined contribution (where you and your employer pay a fixed percentage of your salary in a pot), a Group Personal Pension Plan or a Stakeholder arrangement.
A Stakeholder pension plan is similar to a personal pension plan. Contributions are paid to an insurance company, invested on your behalf (a choice of investment funds is usually given) and the accumulated fund is used at your selected retirement age to secure retirement benefits.
The actual accumulated value of your fund will be dependent obviously on the size of your contributions, the period over which you have paid them and the investment returns/losses applied to your funds of choice. It should be noted that investment values can fall as well as rise. With this in mind you should also note that pension investments are long term arrangements that do tend to yield good long-term returns.
If you have your contributions deducted via your employers payroll tax relief will be granted at source. If it is an individual Stakeholder plan, tax relief is added to the contributions allocated to your policy. This applies to basic rate taxpayers. If you are a higher rate taxpayer the additional tax relief has to be claimed via your tax return on a year on year basis from the Inland Revenue.
Once contributions have been paid across to your Stakeholder provider they cannot be withdrawn until you actually choose to draw benefits from the policy. This at the present time can only be done after age 50 (this will be changing to 55 with effect from April 2010).
The actual benefits that can be provided by a Stakeholder policy are straight forward and the easiest to explain. At retirement up to 25% of the accumulated fund can be paid as a tax-free cash lump sum with the remaining part of the fund being used to secure what is known as an annuity at any age up to 75.
The actual annuity that could be provided upon retirement cannot be accurately projected due to the changing annuity market, however you have the choice of either securing your annuity with the provider with whom you hold the Stakeholder plan or you have the option to approach the open market. This means that you can pay the remainder of your fund to another provider to secure an enhanced benefit.
The main differences between a Stakeholder Pension Plan and a Personal Pension Plan are:
 Stakeholder plans have a maximum Annual Management Charge equal to 1% of your accumulated fund value each year. Personal Pension Plans tend to have much higher charging structures.
 Your Stakeholder provider cannot impose any penalties to your fund should you wish to stop paying contributions or transfer the value of your fund to another suitably approved pension arrangement.
 Any Stakeholder providers must accept contributions in excess of £20.00 per month. Most Personal Pension Plans have a minimum of £50.00 per month.
 The maximum contribution to a Stakeholder Pension Plan regardless of your other arrangements amounts to £3,600.00 per annum. The actual cost of doing this for a Basic Rate taxpayer is £2,808.00 per annum, the other £792 being added to the policy by the Inland Revenue.
 You can pay contributions on behalf of other people. This means that a parent can set up a policy for their child and contribute the maximum on their behalf therefore building up a substantial fund over the longer term (subject obviously to investment returns).
As stated above, contributions receive tax relief at your highest rate of tax and you dont even have to have any earnings to contribute (prior to the introduction of Stakeholder you could not contribute to a Personal Pension Plan without having any earnings).
As you are not required to have earnings to contribute to a Stakeholder Pension Plan a non-taxpayer receives a 22% boost to their fund.
If your employer does not have one of the arrangements mentioned earlier in my opinion they will probably fall into the category where they have to BY LAW offer you access to a designated Stakeholder Pension Plan via your company payroll. If this is not the case, ask why they dont offer this facility. There are still some employers out there breaking the law.
Alternatively you can obtain an individual Stakeholder Pension Plan from most banks and building societies or direct from insurance companies such as Norwich Union, Prudential, Scottish Widows or Scottish Life.
From a personal point of view the introduction of Stakeholder pensions brought about concurrency legislation. Concurrency allows members of occupational pension schemes who earn less than £30,000.00 per annum to contribute to both their employers scheme and to either a Stakeholder or Personal Pension Plan. Prior to the introduction of Stakeholder this was not allowed. You were either a member of your employers scheme or had a personal arrangement. You could not have both.
Bearing in mind I work in the financial services sector I have seen very few low paid individuals take up the Stakeholder option and indeed take up nation-wide has been disappointing and well below the projections made by Gordon Brown and the Department for Work & Pensions. On the whole, my experience of Stakeholder has been via those individuals who wish to reduce their income tax liability or set up retirement funds for their children or grandchildren. Not the group of people it was targeted at.
If you are a low earner and are considering paying into a Stakeholder you should seriously consider seeking advice. Paying only the minimum amount into a Stakeholder plan for a short period of time may simply mean that you take yourself over the threshold for the Minimum Income Guarantee. Yes, you will be providing for yourself in retirement but effectively you will be paying now to save the government money in the long term.
As this is a regulated area of the financial services arena I cannot come out and say yes I recommend Stakeholder Pension Plans. Everybody has different financial aims and aspirations in retirement and therefore to make a general recommendation would be naïve.
What I would recommend is that you review your own pension provision as lets face it, how many of us could survive now on the single persons Basic State Pension of £77.45 per week (£123.80 for those who are married)?
Stakeholder Pension Plans are a good product and as with any tax efficient savings plan should be considered when planning for your retirement needs. If you have trouble understanding what arrangements you have, or what level of income you may require in retirement seek independent financial advice. IFAs are no longer the cowboys portrayed in the 80s and it is now a highly regulated industry. Just bear in mind that advisers employed by banks and building societies are not normally independent; they are tied to selling only their own products, even if they are not the most suitable for you.
You can find an IFA in your area by either looking in the Yellow Pages or by visiting The Society of Financial Advisers (SOFA) at www.sofa.org. They are a search function that will give you the name and address of a regulated independent adviser in your area.
Thanks for reading what is a bit of a lengthy serious opinion for me and I hope you found it helpful.
If you would like to learn even more about Stakeholder Pension Plans I recommend the following sites:
Alternatively, if you have any queries relating to pensions (of any kind) there is a voluntary organisation called the Occupational Pensions Advisory Service (OPAS) who help resolve disputes or misunderstandings between pension scheme members, pension schemes and pension providers. There designated Stakeholder information and helpline numbers can be found at www.stakeholderhelpline.co.uk.
Thanks for taking the time to read and rate.
I signed up a short time ago to the Halifax Life Stakeholder pension.
This is offered by both both Bank of Scotland and Halifax either through branches or on-line.
To date I have been extremely dissappointed with the service. It generally takes at least a week or two for any information to be received.
The actual service is quite poor.
I have had to make several requests to get online access to the pension. Eventually internet access was refused as I set the account up through a branch (when in fact I did this online).
The direct debit was set up for the wrong amount.
I defintely would not recommend Halifax Life as their service levels are just too poor.
An alternative title for this opinion could be "everything you need to know about stakeholder pensions but were too bored to ask". I bet the very mention of the word "pension" has got most you either running scared or nodding off to sleep! Part of the reason why the p-word strikes so much fear into our hearts is that they seem so complicated, confusing and full of jargon, so what I am going to try and do is write a "dummy's guide" to stakeholders, putting what I know into plain English - including how to get your hands on some of the Inland Revenue's money! DISCLAIMER - I would like to state that I am not a financial advisor, and anything written in this review is my understanding and opinion of these products. Taking out a personal pension is a big decision, and you should check out as much available information and advice first, to make sure that you are making the right decision for yourself. ● So what is a pension then? A pension is the income you get when you retire, paid to you in regular instalments. There are three basic sorts - the state pension (what the government pays you on reaching state retirement age), occupational pension (one you get through some employers) and a personal pension (one you have privately and pay into yourself). A stakeholder pension is a type of personal pension. ● Why bother getting a stakeholder pension? You may have heard talk recently of the "pensions timebomb" that is building up in Britain. This means that we have an ageing population, with more people living longer, and fewer young people in employment to support them; this means the government cannot afford to pay much to each individual pensioner (although the actual amount varies depending on how much National Insurance you have paid). Added to this is the fact that many companies are not paying as much as they used to into company schemes so they can boost their
profits, and the fact the stock market has been falling recently. A lot of people are probably also put off by the pensions mis-selling scandals that happened a few years back. What this all amounts to is that many people are facing a very poor retirement. The stakeholder pension was introduced just over a year ago by the government, as a potential solution to this problem. It offers a cheap pension plan that has to match certain standards (laid down by the Financial Services authority), and allows people to save much more flexibly for retirement, so they have a second pension to supplement the state one. ● What are these standards? The basic requirements of a stakeholder pension are that: - it can only charge fees of up to 1% per year - it has a minimum paying-in level of just £20 (some offer as low as £1) - it is open to anyone in the UK aged 70 or under (even children!) - it is open to you regardless of whether you are employed or not - you can increase, decrease or stop payments without being charged - you can invest up to £2,808 in each tax year (April to March) - other people (such as parents and employers) can pay into your scheme ● Who offers stakeholder pensions? Quite a few places offer them - banks, building societies, insurance companies and investment companies - and will have information available on their product. You need to approach the provider directly if you are interested in their pension scheme. ● What about the tax relief? This is the really good thing about stakeholders! Anyone who pays into a stakeholder pension, whether they are taxpayers or not, are eligible for income tax relief of 22% (or 40% if you pay at the higher rate of income tax). What this means is that every £100 you invest into a stakeholder costs you just £78. Or to put it another way, for every £1,000 you pay into your fund, the nice people at the Inland Revenu
e will top it up by over £200. :-) You do not even have to do anything to get this extra investment - your pension provider will automatically claim it for you. ● There has go to be a catch somewhere! Well, there are certainly some disadvantages to getting a stakeholder pension, and they are not right for everyone. The risk factors associated with them are: - investment is linked to the stock market, so can go up or down - once you have invested money, you cannot get it back until after you are 50 - the amount of income you will eventually get cannot be guaranteed (it is dependent on how long you have the pension for, how much you pay in, and interest rate levels) - the amount of tax relief and the rules governing these pensions may change in the future ● My opinion I have recently opened a stakeholder pension after having a bit of a windfall - I chose to invest my money like this partly to get some of that extra money off the government, and partly because I had heard so many scare stories about young people not saving enough for their future. A close member of my family has recently retired and gets a state pension of around £70 a week, with a very small additional monthly income from an occupational scheme (about £20, I think). This is a very small amount of money to be living on, and it is only her good luck that her husband still works and the mortgage is already paid off. This sort of income does not buy a great deal! The stakeholder plans are certainly a step in the right direction in encouraging people to take responsibility for saving for their retirement - they are straightforward (or at least as straightforward as any pension is likely to get), cheap, flexible, and I can have one even though I am not yet employed. I cannot afford to invest much money at the moment, but I am confident this will increase in future, and the fact I have started at an early age works in my
favour. I chose to take out my stakeholder pension with Virgin Money. They have come out very well in several independent financial surveys I have looked at recently, have online access, a minimum payment level of £1, and all their information is written in plain English. They also give you a "cooling off" period for 2 weeks after you open the pension in case you change your mind - your money will not be invested until this time is up, and up until them you can have any initial investment back. As I have only had this pension for three months, I cannot comment on performance - though I doubt anything is performing well at the moment! ● Further information Government pension guides can be downloaded from: www.pensionguide.gov.uk Or by writing to: Pension Guide Freepost Bristol BS38 7WA Good, plain English advice is available at: www.virginmoney.com http://stakeholder.opra.gov.uk/
If you have a stake holder pension you certainly get some tax benifits on the paying in side that you do not with an ISA. However, on maturity you can take up to 25% as a lump sum and purchase an annuity with the rest.This obligation to buy an annuity is my biggest concern, you do not know what rate you'll be getting on the annuity until the pension matures and should you die your dependents get nothing. If you invest into an ISA you get 100% lump sum tax free to invest as you see fit. If you're going to live forever then a stakeholder seems pretty good value, if however, like most of us you are mortal then perhaps it might be wise to consider the alternatives. The stakeholder is not necessarily the best way. This opinion is not intended to give individual advice as everyone's personnal circumstances vary so much, it is mainly to point out that stakeholder pensions may not be right for everyone.
Please note this should NOT be taken as financial advice. A Stakeholder Pension allows, for the first time, the non-unemployed to take out a pension plan. Previously, only those with an earned income, either employed or self-employed, were permitted to pay a percentage of their pay into either their company or a personal pension scheme. So now, non earning spouses, all non-employed persons and children can start their own personal pensions in their own name. It also allows those in employment earning less than £30,000 to make additional pension provision. The incentive given by the government is that they will give a 22% kick-start to all your contributions. The most you can contribute in any one year is £2,808 which, with the government tax credit reclaimed by the life assurance company, makes it up to the maximum £3,600 in any one tax year. Management fees are also limited to a maximum 1% per annum, some companies will charge less, but it cannot be more. You can freely vary your contributions, stop and start as you wish and transfer to another provider without penalty. Those in employment can also benefit from this new scheme. If your annual gross income is less than £30,000 then, even if you are already in your company scheme, you can contribute up to the maximum in a stakeholder as well. You can also contribute the maximum into a stakeholder even if you are also making maximum additional voluntary contributions, avc's. Example: if you presently contribute 5% into your company scheme, you can contribute another 10% in avc's and you can also contribute another £2,808 into a stakeholder. The scheme is being sold by the government as an incentive for the lower paid and less well off to start making provision for their retirement. A criticism of the scheme is that it is just the better off that will take full advantage of the scheme and contribute all they possibly can, and for their spouse, and their children an
d grandchildren. Stakeholders are just another savings vehicle but with a tasty tax break. Stakeholders allow you to contribute until you are 75 and allow you to draw a pension at 50. This offers an interesting opportunity because you can contribute and draw a pension at the same time. In theory, every year, you can contribute £2,808 which is made up to £3,600, and immediately withdraw 25% ie £900 - a very nice return on your money ! The sums get a bit complicated but you can keep this up until you are 75, when the balance must be used to buy an annuity. As with all pensions, the maximum you can draw out as a lump sum is 25% of the accumulated fund, and with the balance you have to buy an annuity, ie give the lump sum to an insurance company in exchange for a regular pension. You can delay buying that annuity until you are 75, but by then you have to hand over the balance of your fund. This is obviously a bit of a downer if you hand over a big lump sum and then pop off as, once it has been handed over, it is theirs not yours, and does not form part of your estate for your beneficiaries to enjoy. This is where the insurance companies offering annuities bank on making much of their money. This obligation to buy an annuity at 75 is a bit cruel when returns are lousy, but that is another topic. Whether to buy a Stakeholder is a matter of whether you can afford it and your views on investments. Stockmarkets are jittery, the optimists say this is a great buying opportunity and markets can only pick up, the pessimists say the world stock markets are about to collapse. One small bit of comfort is that at least with the 22% tax break, you won't actually be out of pocket until the value of your fund drops by 22% ! It is certainly true that the earlier you start the more will be in the pot when you come to retire and hopefully, despite the short term ups and downs of the market, in the long term your investment will have grown to a usef
ul amount. The life companies will offer a choice of funds in which to invest; more opportunist or more conservative unit linked investments or a with-profits fund. You can mix and match your investments, ie split your contributions between different funds. You will probably be allowed to make x number of changes to your investment mix each year without charge. With unit linked investments the value of your pot will be determined by the value of the units on the day they are eventually cashed in. With a with-profits fund you will know more or less what you are worth as a bonus will be added each year to your pot, and there is also the possibility of a final bonus on maturity. You will receive annual statements each year. If you take out a Stakeholder you might choose one of the last mutual ones like Standard Life or Wesleyan in that the hope they may one day offer windfalls. You will acquire membership only after two or three years so will have to hope they don't de-mutualise before that. There is always the chance that the government will change the rules when they realise the scale in which the better off are taking advantage of the tax breaks. There is also the chance they will drop the 22% basic rate tax benefit down to the lower rate of 10% So I am getting in early and hoping that the stockmarkets will rise over the coming years and I will accumulate a useful pot by the time I retire. Again, please note this should NOT be taken as financial advice.
When I worked as a contractor, I always had a Personal Pension Plan (PPP). It has now been transferred to a Stakeholder Pension plan since 6th April this year. Stakeholder Pension (SHP) is a much better product with less restriction and more flexibility. It is a private pension in addition to state pensions. A state pension is paid by the DWP (Department for Work and Pensions, formerly DSS) whereas a private pension is paid by insurance company. Any UK resident under 75 can join a SHP plan. Now, even children can start saving for their pensions as well! The scheme is very flexible, you may choose to save regularly or just pay a one-off payment now and again into the plan. The regular payments can be increased, decreased, or stopped anytime. The minimum payment is £20. Each payment into a SHP plan attracts income tax relief of 22% (for 2001-2). For example, for a gross payment of £100, you only need to pay £78, Mr. nice guy Gordon Brown will top it up by £22. That's a massive 28% increase instantly. This must be the best bit of the SHP plan. Remember, you'll get the tax relief whether you are taxpayer or not. The normal maximum limit of saving per tax year is £3,600 including tax relief. The fund managers invest your money over a long term to get a good return for the pension funds. The management charge is kept low at 1% or less per year. Now the catch, you can’t withdraw money from your fund until you retire. On joining a SHP plan, you are required to specify your retirement age between 50 and 75 (It can be changed later by giving notice). At the time of your retirement, you may then withdraw up to 25% of your fund. The reminder of the fund is used to buy an insurance product called annuity. It will provide you a pension for the rest of your life. By the way, pensions are subject to income tax just like any other income. Points to note (positive and negative) when you consider starting a SHP plan: - + The governme
nt will top up your saving. + You may take out a lump sum when you retire. + You will get additional pension to supplement state pension. + Your pension is for life no matter how long you live. - You can't touch your saving until you retire. - Your pension is taxable. - It could be a bad deal if you die early after retirement. There are useful leaflets on Stakeholder Pensions available from local libraries and the Post Office. NB This opinion is not intended to give financial advice. E&OE