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Buyers Guide: Pensions

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      19.01.2002 00:21
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      In April last year the government introdued stakeholder pensions. The idea being to make pensions more accessable to everybody. You do not have to receive an income and you can pay on behalf of someone else. The most you can put in each tax year is £3,600 (£2,808 net payment). This can be put in as a single premium, a cheque for £2,808 or a monthly payment of £234.00 net, through your bank account. This makes a pension for a grandchild a very tax efficient investment. What better start can you give your new grandchild than a £3,600 gross investment into a pension plan. If you are mega rich and have oodles of money you can put this amount in, year on year until they reach 18 and become able to afford to contribute themself. The advantages to this are that the money has many, many years to grow and you will be providing for their retirement, which children are always reluctant to do until it is too late. Fund choice can be adventurous in the early years and more cautious as they get older, very flexible. There are many Stakeholder providers and it is always advisable to visit a Financial Adviser to discuss your needs and get the best advice. Of course, there are many other ways of saving money for your grandchildren, but if you want to provide for their long term future this is the ideal solution. There are, of course, many other people that can benefit from the stakeholder regulations but this is one way of giving your grandchildren's retirement a boost. Sound good to you - then seek independent advice and get in for this tax before 5th April, you will be rewarded in heaven. This is only one benefit of the new stakeholder rules, but well worth considering.

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        10.02.2001 02:06
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        The first thing when any aspect of Financial Planning is considered is to speak to an Independent Financial Adviser. Some advisors are tied to one product provider so make sure that the Advisor you speak to is Independent. This way you have access to every providers products and not just the one he is tied to. This is the most important step and one that a lot of people don't bother with. I think this is a result of the mis-selling of the 1980's. Many people view Financial Advisers in the same light as shady car salesman and this (in general) is a false perception. I would seek a Financial Adviser who is well qualified. Anyone who has a Financial Planning Certificate can give Financial Advice. This is not the most difficult qualification in the world (I have one!) and I would recommend seeking an advisor who is well qualified above this. Any reputable advisor will be only too happy to get the chance to go on about his qualifications! The Company Pension/Personal Pension argument still rolls on. It is generally regarded that it is better to take the Company Pension route if your Employer is contributing. Some Scheme's require no contribution from the Employee and this is obviously a very enticing option. However, if you change jobs regularly, are self employed or are one of a number of others that a Company Pension Plan are not suited towards then a Personal Pension can be a very attractive prospect. The great thing about a Personal Pension is you can change jobs and continue contributing to a Personal Pension. With a Company Pension Scheme when you change jobs you can't contribute to that Plan any longer. You either have to leave it or transfer it away (which incurs penalties). It really is a matter of sitting down with an IFA and filling in a fact find to discover what suits your individual needs. It will take a good 30 mins to establish basic needs and this is time well spent. There is not too much more
        I can say here as the needs of every individual vary. Some points I will make from my own experiences are as follows * Check the charges under the Plan. With the new Stakeholder plans charging no more than 1% per annum most life offices will allow you to switch to a stakeholder style set up. * The things, which will separate one life office from another, are reducing all the time. A while ago you would consider financial strength, investment record, asset ratios, charging basis etc before quality of service would appear somewhere near the bottom. Now most providers charge 1% per annum, have external fund managers and are merging to form massive Companies. Quality of service is now in the top 3 things Financial Advisers look for. This shows that the differences in other factors are reducing. Make sure you establish what needs you have from the provider before selecting one (with the aid of an IFA of course! * From a Personal Pension Scheme you are entitled to 25% tax-free cash from the fund at retirement. From a Company Pension Scheme your entitlement depends on your salary and service. Consult a Financial adviser to see if this will have a bearing on what type of Pension you choose. * The projections a life office issue are educated guesses. I would bear in mind what they say but would not rely on them at all. The closer you get to retirement the more accurate the projections become but be wary of any projections which is more than 10 years in the future as they will assume higher growth rates than most providers are achieving at the moment. * Consider the new lifetime options a lot of providers now offer. They invest in higher risk funds at the beginning and as time goes by they switch to lower risks investments. The idea being that as you approach retirement you are in very safe investments so that a stock market crash would not have as big an impact on your upcoming retirement fund. * When
        you come to your retirement date shop around for your pension. A lot of providers concentrate on pre-retirement business whilst others concentrate on post-retirement business. The annuity that your pension provides will depend on what kind of rate your provider uses. Others may provide a much higher rate and there is nothing to stop you shopping around. All too often laziness at this point can mean ticking a box which takes the annuity with the fund provider. This can make a major difference to the pension you receive. * Start contributing from as young an age as possible. A relatively small amount invested over 40 years can grow into a substantial amount. Too many people leave pension provision until later in life. * Finally (and the only point in this opinion I would say with certainty) get a Pension that increases in payment. The initial payments are smaller than a non-increasing pension but bear in mind you may be relying on this income for up to 40 years and in 40 years time £10,000 per annum won't be worth much at all. Oh and remember and speak to an IFA before making any decisions (I am not one but it is extremely important).

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          10.02.2001 00:55
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          I would advice anyone who is chosing pension to find an INDEPENDANT FINANCIAL ADVISER, not just a FINANCIAL ADVISER, because they can only help with one companies products rather than the the whole gammit. An IFA should work on either a commission or fee basis, and be aware of all products available, (but then I would say that my Dad's an IFA) But here is another perspective, I would be interested in people's comments. Now when you get your pension out you have to pay tax as if it's a salary. So why not just spend the money you are putting in a pension into Premium Bonds(average just under 4% tax free return, and you never know you might make jackpot) and the rest in ISA's. So your investing the money in what you want to, rather than a pension company, and on all the returns you pay no tax. Interesting thought, I know one comment might be that if your self employed, it's a tax saving to use a pension, but what about for other people.

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            09.02.2001 18:34
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            To write a really good opinion on pensions, I think you have to be a financial advisor with years of experience and the most up-to-date information possible!! However, I have decided to give it a go myself, having spent hours talking to my IFA (Independent Financial Advisor), and close personal friend, about the subject. I apologise in advance for not being an expert on the subject, I just hope that I am able to help to steer people in the right direction. As far as I am aware the information included in this opinion is correct, but if I do make a mistake please, please let me know so I can put it right. This brings me to my first point. ALWAYS get the help of an IFA before committing to a long-term investment such as a pension. For example, I looked into the Virgin stakeholder pension options and the returns looked REALLY good, but the catch is that they have no performance history which doesn’t tell you how well their fund does over a long period of time. This is one point that many people feel is important and is discussed further in the next paragraph. Don’t just take my advice on the subject, or other people’s opinions in DooYoo, I would recommend that you also get a professionals help! Second point. You need to know about long term performance of companies and fund managers to see what sort of level of growth to expect and how much risk is involved. That is, how much does this funds performance fluctuate? You obviously want a balance between the two – a good return without too much risk. Choose the type of pension carefully. Briefly there are now three types of pension; personal, company and stakeholder. Stakeholder pensions are a special kind of pension that have reduced ‘fees’ attached to them. That is, your IFA and other third parties are limited in the amount of money they can take as commission, and as I understand, this amount is 1% or less. Company and personal pensions don’t have this
            protection and 5% or more of your money can be take by these people. Another consideration to make is how much money you can afford to put in a pension. This money is tied up until you are 60/65 years old. If you think you may need access to the money before this time, it may well be better to invest it in an ISA, which has a higher rate of tax free interest but is also accessible. There are many of these products on the market so advice is necessary here as well. To reiterate the point, an IFA would be able to talk you through the options for saving you money (including pensions) and help you decide which is best for you and also which product would be best to invest in. The final few features to look for in a pension is portability and also if you are able to stop payments. Stopping payments is particularly important if, for example, a woman wants to have a family and take a career break. It is also important for anyone who wants to take extended time off of work or has a job that has an irregular income, such as contract work. Pensions that don’t allow you to stop payments when you want and for as long as you want would not be of any use in this situation. By portability I mean; can you take the pension with you if you were to change jobs and can you transfer it to a stakeholder pension at a later date? You must find this out first! Now I think this has covered the most important points but I can revise this opinion if necessary. If there is other information you wish to know, please let me know and I will try to add it, if you feel I have left important considerations out please tell me, or else write your own opinion and between all of us we will be informed pension buyers. One thing I think I should add: I haven’t decided which pension to get yet, but when I do I will let you know and give you my reasons for choosing it. For more information please see: http://www.ftyourmoney.com/products/pensi
            ons/pension_intro.html http://www.pensionsorter.com/ http://www.stakeholder.co.uk/ http://www.pensionguide.gov.uk/

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