We Specialise in Pension Simplification.

Have you considered how much free time you’ll have when you retire? How will you afford to do the things you really want to? The more spare time you have the more income you’re likely to need in order to enjoy yourself. The State Pension will only meet your most basic needs

Saving for retirement now could make a considerable difference to the size of your pension when you retire. The longer you delay starting to save for retirement the harder it will be to provide a meaningful pension

Stakeholder pensions are simple, low cost, flexible and tax efficient and aim to encourage more people to start saving for their retirement

Stakeholder pensions are available to nearly everyone and you don’t even have to be in work to have one! You can start a Stakeholder Pension for a spouse, your children or even grandchildren

At The Wright Financial Advice we can help you sort out your Stakeholder Pension needs quickly and easily and will give you as much guidance as you want to help select the right Stakeholder Pension for you

What are Stakeholder Pensions?

They are intended to be simple, low cost, flexible and tax efficient for everyone. The aim is to build up a fund to provide you with an income in retirement. If you wish you can take a tax free lump sum of up to 25% of your total pension fund and use the rest to provide you with your pension income. This can be done any time between age 50 and 75. Because Stakeholder aims to provide for your retirement it isn’t usually possible to receive your Stakeholder Pension before age 50.

You can also choose to protect your Stakeholder contributions if you are unable to work due to illness or accident (after a deferral period of usually 6 months). Contributions to your Stakeholder plan will continue to be made so you don’t lose out. The cost of this protection depends on your health and occupation.

What makes Stakeholder different from previous personal pensions is that it’s available to a greater number of people; The employed or self employed Employees in company pension schemes earning less than £30,000 per annum and not a controlling Director. People with existing personal pensions, who don’t exceed their contribution limit. Those who don’t work

Therefore you can save for your retirement with a Stakeholder Pension even if you don’t have earnings. You can also take one out for your spouse, children or even grandchildren. You must be a UK resident or ordinarily resident in the UK and under the age of 75 to be eligible for Stakeholder.

Any Stakeholder Pension must meet certain criteria set by the government regarding Charges, Flexibility and Information;

Charges – For managing your Stakeholder Pension, providers will make a charge. Under the Stakeholder criteria the maximum charge applicable is 1% of your fund value each year and is taken from the value of your fund.

Flexibility – It is possible to pay into your Stakeholder on a monthly basis, yearly or even one off contributions. The minimum contribution is £20 and you can change the level of regular contributions at any time. The maximum amount is subject to Inland Revenue limits. You can transfer your Stakeholder plan to another provider without any exit penalties and you can take your Stakeholder plan with you from job to job.

Information – The provider of your Stakeholder Pension must give you regular updates on your pension fund including a yearly statement on the value of your fund and how much you have contributed.

How much can I pay into my Stakeholder Plan each year?

If you are employed you and your employer can pay into your Stakeholder Pension. Currently you can pay up to £3,600 per year into your plan whether you are working or not and this could be more depending on your earnings and age. If you are a member of a company pension scheme it may also be possible to pay in more money depending on your earnings and your age. In addition if you have earnings from more than one source you may be able to contribute more.

What does contracting out of SERPS mean?

SERPS (State Earnings Related Pension Scheme) is a top up pension to the basic old age pension available only to employees. The amount you will receive depends on your earnings while you were employed and the level of National Insurance contributions you made. If you are employed you are automatically contracted in to SERPS unless you decide to contract out. If you do so you lose your entitlement to SERPS and instead part of your and your employers National Insurance Contributions are paid into your own Stakeholder plan, personal pension or even employers pension scheme. Some company pension schemes are contracted out and some are not. You can decide each year whether you want to contract out or not. The government has made changes to SERPS and has renamed it the State Second Pension from April 2002. This is designed to offer greater help to lower earners, especially those earning less than £10,000 a year.

Can you tell me what the Minimum Income Guarantee is?

This is a benefit designed to help people with low incomes in retirement and is means tested. If you qualify for this you may find you are eligible for other benefits. The government wants to ensure all those who’ve saved or want to save for the future won’t be penalised when they retire. New proposals are to be introduced by the government in 2003 which will change the current Minimum Income Guarantees.

What about tax?

Everyone who contributes to a Stakeholder pension plan will receive tax relief on their contributions. Any contributions you make are paid net of basic rate tax which means that for every £100 paid into your plan, you currently only pay £78. Your Stakeholder provider will collect the difference from the Inland Revenue for you. People who are higher rate tax payers can reclaim additional relief through their annual tax return.

Once your money is invested, the growth in your Stakeholder is free from capital gains tax. Certain dividends paid to your plan may also be free of income tax. Should you die before you draw any benefits the value of your plan will be paid as a lump sum unless part of it has been used to provide a spouses pension. Normally there is no inheritance tax to pay. If you have set your pension up under trust, the lump sum would be paid to the Trustees who then decide to whom the lump sum should be forwarded.

Where is my money invested?

All Stakeholder providers have a default fund available so you don’t have to make an investment fund decision if you don’t want to. Alternatively you can choose to invest in a range of investment linked funds to suit your needs. Depending on the provider, you may have a choice of both.

What returns will I get when I retire?

This depends on:- How much you invest The numbers of years until you retire The performance of the investment funds The level of charges Pension Annuity rates when you retire – age, sex, health and choice of pension.

What options do I have when I retire?

You can take your pension anytime between age 50 and 75 even if you are still working. It is possible to take up to 25% of your fund as tax free cash and receive a smaller pension. When you decide to retire there are a number of options available and you can choose the type of pension you need. You may want a pension that increases each year in payment or perhaps one that continues payments to your spouse or partner if you die before them. It’s very important to make the right choices as you cannot change your mind after you’ve bought a pension. yours4money can discuss the range of options available with you.

Do you know?

You don’t need to take your pension from the Company you saved with.

You are entitled to transfer your pension fund to another life assurance company to improve your pension income – often by 15% or more.

If you’ve been a regular smoker, you could improve your pension income by 30% or more

If you suffer from a serious medical condition, you could improve your pension income by 40% or more.

What is an annuity?

In simple terms an annuity is an insurance policy which pays an income for life. Once you’ve decided on the type of annuity you want you cannot change your mind. It’s therefore very important to make the right decision as your annuity provides you with a guaranteed income for the rest of your life

There are 2 main types of annuity:

Pension Annuity - If you have a Personal Pension, Stakeholder pension, Section 226, Self Invested Personal Pension, Executive Pension, Company Scheme, Additional Voluntary Contribution scheme (AVC) or Free Standing Additional Voluntary Contribution scheme (FSAVC) then you will use the money you have built up to buy a pension annuity. This type of annuity is also known as a compulsory purchase annuity (CPA). What many people don’t know is that they are free to shop around and get the best annuity rate available and don’t have to go with the same company their pension fund is with. This is known as the open market option and you can do this any time between age 50 and 75. In addition if you have a personal pension you can take up to 25% of the fund as tax free cash.

Other pension funds have different restrictions laid down by the scheme rules or Inland Revenue rules, yours4money can advise you on what’s available to you.

With the tax free cash you are free to spend this money as you choose, you may want to invest this for an income or to invest in other ways. If you wish, rather than buy an annuity with your entire fund you can buy a number of smaller annuities as and when needed and so gradually increase your income levels. This is known as Phased Retirement and requires specialist financial advice. You can leave your pension fund where it is and take an income from it – this is known as Income Drawdown, but again this is only suitable for certain people and requires specialist advice.

Purchased Life Annuity – This type of annuity is bought with your own money and not from a pension fund and will provide you with a guaranteed income for the rest of your life. If you wish you can buy a Temporary Annuity which provides you with a guaranteed income for a specified term. Usually this will be 3, 5 or 10 years and at the end of the term there is no return of your money.

Regardless of the type of Annuity the amount of income you will receive varies depending on your age. The older you are the better the annuity rate you will receive and the rates available for men are higher than for women due to lower life expectancy.

In addition if you’ve experienced health problems or smoke, you could increase the annuity payment you receive substantially. There are considerable increases in annuity rates available to people with certain health or lifestyle conditions, these are known as impaired or enhanced annuities and are available for people looking at both Pension and Purchased Life Annuities.

How Much Income will I get?

There are a number of factors which affect the level of income you will receive. Firstly, your age, sex and state of health – in other words your life expectancy. Women tend to live longer than men and so their annuity rates are lower. Secondly, the investment conditions within the marketplace when you decide to buy your annuity have an impact on your income level. Companies who provide annuities invest your money into Gilts, if Gilt prices change then annuity rates will do so too.

What options are available?

There are a number of choices available in selecting your annuity and it’s extremely important to make the right choice because once you’ve decided there’s no going back.

Some factors to consider are;

Is the annuity to be a single life or joint life? If it’s set up on a joint basis then the annuity will start at a lower amount than an equivalent single life, but continues on the death of the first life. You can also decide to have the annuity payment remain the same until the death of the second life or it can reduce upon first death to say 50% or even a third of the original amount.

There are two types of annuity that can be set up so that in the event of early death the capital is not lost. These are Capital Protected Annuities and Income Protected Annuities. Capital Protected Annuities mean that if you die before an amount equal to the purchase price of the annuity has been paid, then the balance of the capital is paid out as a lump sum. Income Protected Annuities are when for example a guaranteed period of 5 years is selected and you were to die after 1 year, the annuity would continue to be paid for a further 4 years.

Do you need an income which remains the same for life – if so a Level Annuity may be suitable. Alternatively, if you want an income that increases each year you can build in an increase of usually 3%, 5% or the Retail Prices Index, this is known as an Escalating Annuity. Another option would be if you are prepared to accept a variable annuity dependent on investment performance you could receive potentially better returns. This could be a Unit Linked or With Profit annuity.

You can also decide on the frequency of income payments you will receive. You can receive income monthly, quarterly, six-monthly or annually and can decide to have it paid in advance or arrears.

What Tax will I have to pay?

With Pension Annuities (Compulsory Purchase Annuities) your income payments are taxed as earnings under schedule E and so you will pay tax at your normal rate.

If you have a Purchased Life Annuity then the tax treatment is different. Purchased Life Annuities are split into 2 elements, a Capital and an Interest element. The Capital part is classed as being a return of the annuitant’s original money and is therefore not taxed. With the Interest part you are liable to tax at your normal rate.

What type of Annuity is right for me?

Before you make any decisions on the type of annuity you want, there are a number of factors to consider. For example do I want an income which increases each year or is my income to remain fixed. Do I want income payments to continue after I die and is the annuity to be guaranteed or not?