The OrangeGenie Stakeholder Pension
Your retirement should be something to look forward to – an opportunity to spend time with family or friends or travel the world – not to worry about how you’re going to cope financially.
A pension itself is quite simply a tax efficient way of saving for your retirement.
When you retire or reach a certain age, the pot of money you’ve saved is used to provide a taxable income until you die.
The advantage of pension savings over the various other ways of saving is that you get tax relief on the money you put in to it helping to grow the pot further than you would otherwise achieve. Genie Financial Services Ltd can help you with all areas of your Pension needs, simply call our office on 01865 609011 or complete our Pension Form.
Eligibility
If you are aged under 75 and resident in the UK, you should be eligible to contribute to a pension. Most UK residents will also qualify for a state pension.
Contributions
Whether you're employed or self-employed, you can contribute up to 100% of the value of your relevant UK earnings. There is an annual limit which is regularly reviewed and for the tax year 2009/10 the maximum amount is £245,000. Contributions above the annual limit are allowed but will be taxed. You may also contribute into any number of pension schemes (personal and/or company) each year.
Tax relief
You'll receive tax relief on your contributions to the pension fund - so for higher rate tax payers a £20,000 investment would cost just £12,000. 20% (basic rate tax relief) is added by the government to all contributions and as well as the basic rate tax relief, higher rate tax payers can claim up to a further 20% tax relief via their tax return each year.
Retirement age
By April 2010, the age at which you can start drawing your pension will rise to 55 (currently it stands at age 50). It’s useful to know that if you need to, pension benefits can be deferred until you are up to 75 years old. It may still be able to take your pension before age 55 in certain circumstances, which may include if you retire through ill-health.
There are two government state pensions - basic and additional state pension:
The Basic State Pension
The amount you'll get when you retire is based on the number of qualifying years you've gained through National Insurance Contributions (NICs), and you'll normally need 90% of your working life to be qualifying years to get a full basic state pension. From 2010, people reaching their State Pensionable Age will need to have paid them for a full 30 years. If your NICs are incomplete, you may also be entitled to Pension Credit, a means-tested benefit that ensures that people with little or no savings receive extra money.
The Basic State Pension currently pays £95.25 a week for a single person and £152.30 for a couple (tax year 2009/10). If you don’t have enough contributions or credits, your state pension income will be less.
The State Second Pension (formerly SERPS)
As well as the State Pension, you may also be entitled to a State Second Pension. The additional state pension is an earnings-related pension, payable on top of the basic state pension and will vary depending on your personal circumstances.
Until April 2002, the additional state pension for employees was called the State Earnings-Related Pension Scheme (SERPS). The amount of SERPS pension you received was based on a combination of your NICs, and how much you earned. In April 2002, SERPS was reformed and renamed the State Second Pension (S2P). It now gives a more generous additional state pension to low and moderate earners, certain carers and people with a long-term illness or disability. If you have joined an employer pension scheme you may have been "opted out" of the additional state pension.
Employee Pensions
Many employers provide an occupational pension scheme for their staff. An occupational pension simply means it’s linked to your occupation, rather than an individual plan you choose for yourself. If your employer offers a pension scheme, it's usually a good idea to join it. Your employer normally contributes and you'll often get other benefits, such as payments to your dependants when you die, a pension if you need to retire early through ill health or pensions for your dependants when you die.
Occupational Pension Schemes can be split into three types:
- Final Salary
- Money Purchase
- Stakeholder Pensions
Final Salary
Final Salary schemes (also called ‘defined benefit schemes’): These link your retirement income to your wages and your employment history. They can pay a retirement income equivalent to up to two thirds of your final salary. If your company offers one of these and you’re eligible to join it may well be in your best interest to do so. The amount of pension payable from such a scheme is dependent upon the length of time served in the scheme (known as pensionable service); earnings prior to retirement (known as final pensionable salary); and the scheme's 'accrual rate' - the proportion of salary that is received for each year of service. So, if the scheme has an accrual rate of 60, the member will receive 1/60ths of his final pensionable salary for each year of service completed.
Money Purchase schemes (also called ‘defined contribution schemes’): With this type of pension, the size of your retirement income is linked to how much money has been paid into your pension pot, and the investment growth achieved. Companies may either run the scheme as an occupational scheme or a group personal pension – often depending on the size of the firm. Employers must contribute to any scheme they offer, and employees can make additional contributions. The money is invested, and a "pot of money" is built up for each scheme member, this money is then used to buy an annuity, which will provide a secure and regular income for the rest of your life. The amount of pension payable is dependent upon the amount of money paid into the scheme (by the member and the employer); 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.
Stakeholder Pensions
If your employer has five or more employees, and does not offer access to one of the above types of scheme, you must as a minimum be offered access to a Stakeholder Pension. Stakeholder Pensions must meet a number of Government requirements which include the flexibility to stop, start and change contributions without penalty, a low minimum investment – as little as £20, charges capped at 1.5% of the fund each year for the first 10 years and 1% a year thereafter.
Since April 2001 all companies with five or more permanent employees that do not have an existing pension arrangement must establish either a group personal pension (GPP) or Group Stakeholder pension. If your employer offers a Group Personal or Stakeholder Pension, you'll build up your own personal pension, but your employer usually collects your contribution from your wages and passes them on to the pension company. This is not legally defined as an occupational pension, but when this type of scheme is arranged through an employer it may have lower charges, and the employer may make a contribution. If you leave your employer all the contributions accrued to that date (including those made by you and your employer) will belong to you. The contributions can be left in the group scheme or transferred to another provider.
Individual Pensions
If your employer doesn’t offer a pension scheme, or you fancy going it alone, then an individual pension can allow you to save for your retirement. This is basically your own pension pot that will continue regardless of where you are working. You can even pay into an individual pension if you’re not working, up to certain limits. A personal pension scheme will provide a pension during retirement, which can start at any age between 50 (rising to 55 by 2010) and 75, a tax-free lump sum on retirement of up to 25% of the pension fund which has been built up, a pension payable to a widow, widower, civil partner or other dependant(s), a tax-free lump sum, payable on death before retirement, to a widow, widower, civil partner or other dependant(s).
Individual pensions can be split into three types:
- Stakeholder Pensions
- Personal Pensions Schemes
- SIPPs
Stakeholder Pensions must meet a number of Government requirements which include the flexibility to stop, start and change contributions without penalty, a low minimum investment – as little as £20, charges capped at 1.5% of the fund each year for the first 10 years and 1% a year thereafter. Because they have to be low cost, you may find that the number of funds is in short supply.
Personal Pension Schemes are likely to offer greater investment choice and flexibility, however they normally have a higher minimum contribution – often at least £100 per month – and higher annual charges than stakeholder schemes.
A Self Invested Personal Pension (SIPP) can allow you to take a much more active role in the investment of your pension pot. You may be able to choose from a range of fund managers and you could invest directly in commercial property, individual shares, stock-market and property funds, gilts (government bonds) and company bonds or futures and options. But you should seriously consider getting financial advice before you sign up. Speak to an advisor at Genie Financial Services Ltd today, call on 01865 609011.
When it is time to retire you will need to use your pension pot to buy an annuity from an insurance company. This will provide or secure your regular income for the rest of your life. You can also buy spouse's or dependant's benefits but this will reduce your own annuity.
Please be aware that the value of tax savings and eligibility to invest in a SIPP or Personal Pension will depend on individual circumstances and all tax rules may change in the future. The value of your investment can go down as well as up and you may get back less that you invested. The rules around pension investment will depend on individual circumstances and tax rules may change in the future.
