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PENSIONS - GENERAL
Pensions are intended
as a pension plan is, effectively, a savings scheme designed to enable you
to save for your own retirement. It is widely recognised that the
Government will be unable to maintain state pension provision in the long
term.
Major medical
breakthroughs, and the public's increasing awareness of the benefits of
healthy living, mean that people in general are living longer. Therefore,
the percentage of people reaching retirement age - and living for perhaps
another 20 to 30 years - is rapidly increasing.
National Insurance
contributions from today's workers are funding state pensions for today's
pensioners. It is therefore inevitable that less and less people will be
funding more and more people - an impossible situation. It would seem likely,
therefore, that more cuts have to be made in the future.
There are many
options available as regards pension planning and, to find the one relevant
to your needs, please click on the headings below or contact us for a no obligation discussion.
Personal Pensions
A Personal Pension
Plan is a virtually tax-free savings scheme * designed specifically to
enable you to save for your retirement. You may save regularly each month
or year, and add single contributions whenever you wish. Alternatively, you
may just pay one or more single contributions.
Group Personal
Pensions
A Group Personal
Pension plan works similarly to the Personal Pension, but is administered
by the employer. Contributions may be made by the employee, employer or
both - within Inland Revenue limits. Personal contributions are deducted -
before tax - from the employee's salary, and paid to the pension provider
by the employer.
Occupational
Schemes
Around half the
employed workforce in the UK
are currently members of occupational pension schemes. A large number of
scheme members are set to receive pensions based on their final salary at,
or near to, their retirement age. These schemes (sometimes called 'Defined
Benefit' schemes) tend to give a higher and wider range of benefits than
other schemes. If you are a member of this type of scheme, you should be
receiving documentation annually detailing what your latest expected
pension will be at your normal retirement date.
AVCs
The purpose of an AVC
is to secure extra pension. Cash can not normally be taken direct from an
AVC. However, there may be special circumstances when AVC benefits can be
commuted for cash. Please contact us for
further details. AVC's are subject to a maximum funding limit of 15% of
remuneration. Members of occupational schemes can purchase extra benefits
if they consider that their pension is not going to provide them with
enough income during their retirement. All occupational schemes are
required to offer these type of arrangements (since 6th April 1988).
Free Standing AVCs
These have been
available since 1987. They are separate from the employer's scheme, and
often allow greater flexibility and control over pension arrangements,
although there may be higher charges because there is no employer subsidy
of costs, which is usually a feature of an in house AVC. FSAVCs generally
offer more choice over investment and product providers.
Options at
Retirement: Phased/Drawdown/ Annuities
The options available
to you on retirement have grown significantly over the past few years. It
was not long ago that there was virtually no choice, other than deciding
whether to purchase an annuity or take a proportion of your pension as tax
free cash or not. You may now, in certain circumstances, elect not to
receive part of your pension and/or tax free cash. There are a number of
reasons why you may wish to do this, a few of which are noted below :-
- You are in poor health
- You do not need the
pension currently
- You do not require the
benefits the scheme are imposing on you
- You require more
flexibility
It is virtually
impossible to detail all of the advantages of phased retirement and
drawdown schemes, as everybody's circumstances differ. Both of these
schemes can be very useful indeed, and should in many cases be considered
prior to retirement. Please contact us to
discuss your individual requirements.
EPPs, SSAS, SIPPs
Many company
directors, and senior executives, are members of either EPPs or SSASs.
Many, however, are not and do not appreciate the advantages these schemes
may bring to their pension and tax planning. These schemes, together with
SIPPs, can be complex and generally require individual consultation. They
can, however, be extremely beneficial. Please contact
us in order that we may discuss your requirements and consider your
options.
Stakeholder
Stakeholder is the
new pension that the government introduced from April 2001. It is simple and offers good
value to everyone, especially those on low incomes. To be able to call
itself 'stakeholder', a pension will have to meet minimum standards on
cost, access and terms (the 'CAT standard').
Contributions: the minimum monthly
contribution is £20. Those not in employment will be able to contribute up
to £3600pa even though they will not be in receipt of 'net relevant
earnings'- i.e., will not have to be earning a salary to contribute to a
pension. This will widen its appeal, as it will capture a large percentage
of the population (such as housewives, people on career breaks etc) who
were previously unable to contribute to a pension.
Employer
Responsibility: all employers will have to offer access to a stakeholder scheme
unless:
- There are less than 5
employees.
- A Group Personal Pension
Scheme is already available with a 3% employer contribution and no
discontinuance penalties and staff are allowed access within 3 months
of joining the company.
- All staff are offered
access to an occupational scheme within 1 year of joining.
- The contracted in money
purchase is available for staff after one year
This will be an
enormous responsibility for most employers. Even those who are now
providing pension schemes for their employees will almost certainly have to
make some major changes to what they are currently offering.
The access
requirement came into force in October 2001. All employees must be given
access within 3 months of joining the company.
The Government's
aim is that employees will play a key role in offering this new type of
pension to their employees. Their responsibilities will include:
- Consulting the employees
- Choosing the appropriate
scheme
- Communicating the
benefits of the scheme chosen
- Advise joiners
- Set up payroll deductions
Pensions are intended
as a long term investment. If you withdraw from these investments in the
early years you may not get back the full amount invested. These
investments may not be suitable for all recipients please contact us for
full advice. Past performance is no guarantee of future returns and the
value of units can fall as well as rise. Levels and bases of and reliefs
from taxation are subject to change. Note:
*Free from income capital gains taxes on growth within the fund and
proceeds to the investor.
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