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Frequently Asked Questions
What are Stakeholder Pensions?
Stakeholder Pension schemes are low cost, flexible pension arrangements
designed for people who want to save for retirement but may not
have access to an employer sponsored occupational pension scheme
OR are a member of an occupational pension scheme and earn
below £30,000 per annum. (If the latter situation applies
to you please click HERE
to learn more about "concurrency rules".)
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Why should I consider investing in a Stakeholder
Pension?
In 2002/2003, the basic state pension payable to an individual
who has a complete history of national contributions (49 years for
a male and 44 years for a female born prior to 6th April 1950) is
£75.50 gross per week.
Whilst this could be considered a starting point, over the past
few years, their have been many people commenting on the fact that
in many circumstances those people who do not save into their own
pension to provide extra income in retirement may not have enough
income each week to maintain a reasonable standard of living.
The Government have identified the problems this could cause in
the future and have introduced stakeholder pensions to encourage
individuals to save for their own retirement in a cost effective
way.
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How does a Stakeholder Pension Plan work and what
do I get back?
You invest your own money to build a pension fund. The contributions
you make will be invested into funds that aim to provide the potential
of higher growth than deposit based accounts over the longer term
such as life assurance company pension funds and/or stocks and shares
based funds.
When you retire, up to 25% of the pension fund can be taken in
cash as a tax free lump sum. The balance is used to provide you
with an income for the rest of your life. The income can be taken
in many different ways and at retirement you will be able to choose
which method suits your own circumstances best at that time.
To get an estimate of how much you might get back at retirement,
dependent on your age and how much you save each month, click this
button.
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How do I know if a stakeholder pension is right
for me?
Whether a stakeholder pension is right for you will depend on your
own circumstances. You should ask yourself if the basic state pension,
together with any arrangements you have already made, will be enough
to meet your needs when you retire.
As the Stakeholder Pensions offered via this site are on a "Direct
Offer" basis, to qualify for the discounts applicable you must
make this decision yourself. However, to help you make this decision,
our regulator, The Financial Services Authority (FSA) have provided
interactive "decision trees" on their website that you
may find useful.
Click HERE
to view the FSA's interactive Stakeholder Decision Trees online.
Alternatively you can print off the decision trees to read at a
later date.
The FSA Factsheet: Stakeholder pensions and decision trees is also
available for download as an Acrobat file. (PDF version). If you
do not have Adobe Acrobat Reader installed please feel free to click
on the link below
Acrobat
Reader Download
If you are still unsure you should seek Independent Financial Advice.
On your request, Money Minder Financial Services Ltd is happy to
provide advice specific to your own circumstances. However, if you
use this facility the discounts offered on any investment or pension
products available through this site will no longer apply.
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When should I start and how much should I save
into a Pension?
The earlier you start paying into a pension and the more you pay
in, the higher your pension will be.
According to a study carried out in 2001 by the Association of
Consulting Actuaries, workers starting a pension at age 25 need
to invest a minimum of 10% of their income if they want to retire
with just under 2/3rds of their final wage to live on. However,
those wishing to retire early or are starting later need to invest
much more.
The ACA recommends that those starting a pension at the age of
35 need to invest between 15% to 20% of their salary while those
starting at age 45 need to ensure that up to 30% is invested.
The Financial Services Authority and the Association
of British Insurers have devised an online pensions caculator aimed
at providing the public with an idea of how much their pension is
going to be worth in the future.
Simply click on the button below and fill in the form
with details such as your age, pension contributions and when you
want to retire. The calculator will then estimate for you how much
of a monthly pension you can expect when you finally give up work.
However, it is important to remember that
the calculator will only give you a rough estimate of what
you may get at retirement. (Money Minder is not
responsible for the content of external Internet sites)
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How much can I Invest?
You can invest up to £3,600 gross each tax year (£234
per month or £2808 per annum net assuming basic rate tax relief
at 22%) into a stakeholder pension plan regardless of earnings OR
if you are a member of an occupational pension scheme and earn below
£30,000 per annum.
OR
If you are not a member of an occupational pension scheme, you
may invest up to the Inland Revenue permitted maximum of percentage
of earnings as highlighted in the table below:
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Age at 6th April
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% of Net Relevant Earnings
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35 or less
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17.5
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36-45
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20
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46-50
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25
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51-55
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30
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56-60
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35
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61-75
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40
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OR
If you are not a member of an occupational pension scheme, using
the percentages above, an amount equal to the percentage identified
for your age at the 6th of April in the year you wish to make the
contribution but using your best year's earnings from any of the
last five tax years when you were not a member of a company pension
scheme. If you use this method, it is known as a "Basis Year"
and allows you to use the best year's earnings from the last five
tax years as a reference point to pay in contributions at a higher
level than would normally be available in the current tax year.
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How long must I invest for?
Under the current rules, once you have paid money into a stakeholder
pension, you cannot access the money until your 50th birthday. When
you do decide to draw benefits, you can take up to 25% of the funds
value to provide you with a tax-free lump sum and the remaining
balance must be used to provide you with an income for life. At
the latest you must draw benefits by your 75th birthday.
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What about risk?
The value of your pension fund will depend on how much you save,
how long you have been saving for, the charges you pay and investment
returns. The value of your fund can go down as well as up.
The income you get at retirement will depend on the annuity rates
available at the time.
If you stop paying in to your pension or retire early, your pension
is likely to be worth less than you may have hoped.
If you transfer another pension plan into a Stakeholder Pension,
your previous pension provider may apply a "transfer penalty".
Future changes in law and tax practice could affect how much your
plan is worth and your tax liability.
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What about the charges on Stakeholder Pensions?
By law, stakeholder pensions must meet a number of minimum standards
to make sure they offer value for money and flexibility.
Stakeholder Pension Plans are in effect a "CAT" marked
version of Personal Pensions.
The term "CAT" stands for "Charges, Access and Terms".
Any financial product with a CAT mark satisfies the criteria set
by government with regard to maximum charges, easy access and fair
terms with charges currently capped at 1% per annum. The charges
are taken from your fund.
As well as the one per cent, the law allows pension providers to
recover costs and charges they have to pay for certain other administration
requirements. For example, when they have to pay any stamp duty
or other charges for buying and selling investments for your fund,
or for particular circumstances such as the costs of sharing a pension
when a couple divorce. These expenses are found in other pension
schemes, not just stakeholder pensions.
Any extra services and any extra charges not provided for by law
must be optional. Extra services include advice on choosing a pension
or life assurance cover. You must have agreed to these extra charges
as a separate arrangement and the charges must be clearly defined
for the services you are being offered.
The stakeholder pension standards can also include the following:
The scheme must be run by trustees or by an authorised stakeholder
manager, whose responsibility will be to make sure that the scheme
meets the various legal requirements.
· If you choose to transfer into or out of a stakeholder
pension, or you stop paying your contributions for a time, the stakeholder
pension scheme provider will not charge you extra.
All stakeholder schemes will accept contributions of as little
as £20, which you can pay each week, each month or at less
regular intervals.
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What about Tax Relief?
One of the great advantages that Stakeholder Pension Plans have
over other types of investment, is the considerable tax concessions
that your contributions and investment funds receive.
Firstly, stakeholder pension contributions attract tax relief at
your highest rate meaning that the government will in effect help
you to save for a comfortable retirement by adding money to your
pension fund on your behalf every time you pay a contribution.
Secondly, the money invested grows free of income tax and capital
gains Tax. No other UK investment offers all of these advantages.
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Can I pay a contribution now but get the tax
relief applied for last year?
YES. There is facility available to maximise a single premium Pension
contribution and effectively "pull forward" the previous
tax years unused allowances by electing for the contribution to
be treated as if it were paid in the previous tax year.
This facility is known as carry back and means that you can pay
a contribution into a stakeholder or personal pension plan this
tax year and elect for it to be treated as though it was paid last
year.
This means that if you want to, you can then pay this years contribution
as well and in effect "double up" on contributions.
To find out more about the rules of "Carry Back" click
HERE
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Who is eligible for a Stakeholder Pension Plan?
Since 6th April 2001, almost everyone can pay up to £3,600
p.a. into a Personal or Stakeholder Pension without any requirement
of taxable earnings.
This includes individuals who are:
- Employed
- Self Employed
- Unemployed
- Housewives
- Pensioners
- Children (Note: Children under the age of 16 cannot pay into
a pension themselves. However, adults can pay into a pension on
behalf of a child under 16.)
You cannot invest into a Stakeholder Pension if you are:
- Age 75 or over
- A member of an occupational pension scheme, unless your earnings
in the last tax year were less than £30,000 and have not
been a controlling director at any time since 6 April 2000.
- Not ordinarily "resident and ordinarily resident"
in the UK, unless in receipt of "net relevant earnings"
which are chargeable to UK income tax, or either a "Crown
servant" or the spouse of a "Crown servant" working
overseas.
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What is S2P and Contracting Out?
S2P stands for the State Second Pension. It is funded by some of
your own and your employer's National Insurance contributions and
is a top-up pension to your Basic State Pension based on the amount
you earn during your working life. S2P replaced the State Earnings
Related Pension Scheme (SERPS) in April 2002.
For some people, it may be more beneficial to have these NI contributions
paid into their own stakeholder pension plan and 'contract out'
of S2P. You can contract out using your Stakeholder Pension application
form or contacting the insurance company once your plan is set up.
If you are thinking of contracting out, you need to decide whether
the National Insurance rebate paid into your stakeholder pension
could provide you with a better pension than would otherwise been
payable had you stayed in the State funded S2P system.
If you do decide to contract out of the State Second Pension, you
will also be entitled to any SERPS or State Second Pension that
you built up before you contracted out.
If you want to know more about S2P and contracting out click HERE
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