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Guide to Stakeholder Pensions
What is a Stakeholder Pension?
How much can I contribute?
If I don’t pay the maximum amounts can I pay the
balance later?
Do I get Tax Relief on my Pension Contributions?
Do I qualify for extra tax relief if I pay Higher
Rate Income Tax?
Can my employer make contributions on my behalf?
I want to make contributions to another Pension as
well as my Stakeholder Pension.
What is ‘concurrent’ membership?
When can benefits be taken from a Stakeholder
Pension?
Must I take my Stakeholder benefits as a pension?
What if I die before I draw my benefits?
Which Stakeholder Pension will be best for me?
What do I need to think about when selecting a
Stakeholder Pension?
What is a Stakeholder Pension?
Stakeholder Pensions are a form of Personal Pension where
certain conditions, laid down by the Government, must apply. These
conditions relate to the maximum amount that the Pension Company
may charge for the product, the minimum level of contribution they
must accept and the abolition of a fixed frequency for your
contributions.
When the idea was first introduced it was thought that
Stakeholder Pensions would be targeted at individuals earning
between £9,000 and £18,000 per year. However as they have evolved
it has become clear that they are equally suitable for people who
earn more than £18,000. Under new rules introduced at the same
time as Stakeholder Pensions you will be allowed to make a
contribution to a Stakeholder Pension even though you are not
working or receiving any income.
The amount you can contribute to a stakeholder pension depends
on your age and income, but regardless of these factors you will
be allowed to save at least £3,600 gross a year (£300 per month)
towards your retirement.
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How much can I contribute?
Although there are limits on contributions to Stakeholder and
Personal Pensions these limits are very generous. You will be
allowed to contribute up to £3,600 per year (£300 per month)
without any reference to your income or your age.
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If I don’t pay the maximum amounts can I pay
the balance later?
This is no longer allowed. Before the 5th April 2001 there were
rules that would allow you to ‘carry forward’ any scope for
pension contributions that you had not fully used in any tax year.
The old rules would allow a payment into a pension plan (either
a Personal Pension or Retirement Annuity Plan), in respect of any
of the previous six tax years. These rules have now been replaced
by new rules that allow Stakeholder or Personal Pension
contributions to be based on any earnings received within the last
5 years.
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Do I get Tax Relief on my Pension
Contributions?
This is no longer allowed. Before the 5th April 2001 there were
rules that would allow you to ‘carry forward’ any scope for
pension contributions that you had not fully used in any tax year.
The old rules would allow a payment into a pension plan (either
a Personal Pension or Retirement Annuity Plan), in respect of any
of the previous six tax years. These rules have now been replaced
by new rules that allow Stakeholder or Personal Pension
contributions to be based on any earnings received within the last
5 years.
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Do I qualify for extra tax relief if I pay
Higher Rate Income Tax?
Yes, at present the Inland Revenue will allow Higher Rate Tax
payers who make pension contributions to claim up to 40% tax
relief. As only 22% is granted at source you must claim the
balance from the Inland Revenue. Your Pension Company or Tax
Office will provide you with the required form to claim this extra
tax relief.
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Can my employer make contributions on my
behalf?
Employers may pay money into your Stakeholder pension plan
alongside any contributions that you make yourself. The normal
contribution limits continue to apply. This means that if the
total contributions exceed £3,600 per tax year the amount actually
paid must be justified by reference to your age and earnings.
There is no obligation on any employer to contribute to a
Stakeholder Pension plan. However, many chose to do so as part of
the overall benefits package they provide for their staff.
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I want to make contributions to another
Pension as well as my Stakeholder Pension.
This is an area of confusion for many people. Although it is
normally possible for you to make contributions to two different
types of pension arrangement at the same time there are
contributions limits and special rules that you need to take into
account.
If your existing pension is either a Personal Pension (or
Retirement Annuity) you will be allowed to continue making
payments to this plan alongside your Stakeholder Pension so long
as the total contributions do not exceed the limits shown in the
table below.
(Please note: if you are just making contributions to a
Retirement Annuity Plan then separate limits apply. If you require
details of these limits please contact us or perhaps your pension
company)
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What is ‘concurrent’ membership?
Concurrent membership is making payments to a Stakeholder
Pension at the same time that you are a member of your employer’s
‘company’ pension scheme.
Whilst you are allowed to a have as many Personal Pension or
Stakeholder Pension plans as you like, providing the total
contributions you make do not exceed the normal contribution
limits. The situation is very different if you are a member of an
occupational pension scheme (Company Pension scheme) and wish to
make payments to a Stakeholder Pension as well.
Concurrent membership of a normal occupational pension scheme
and a Stakeholder Pension plan is only allowed as long as:
Your earnings are not more than £30,000 for the tax year
Or you are not a Controlling Director of the company.
If you are an employed person then you can pay up to 15% of
your earnings as pension contributions to the occupational
pensions scheme whilst paying up to £3,600 into your Stakeholder
Pension.
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When can benefits be taken from a Stakeholder
Pension?
Under normal circumstances which assume that you are in good
health, you can take your benefits at any time from age 55 to 75.
This applies whether you are male or female. You do not need to
stop working or reach state retirement age to be able to draw
benefits from your Stakeholder Plan.
If your health is poor and you are classified as unable to
work, then you may be able to draw benefits before age 55 (please note: there are strict rules
regarding ill health early retirement. If you believe you could
qualify for such early retirement you should seek advice from your
pension provider).
There are some occupations where the Inland Revenue have agreed
special retirement ages. These lower ages allow members of that
profession to draw benefits earlier than age 55 regardless of their state of health. Examples of such
lower ages are Professional Footballers, Deep Sea Divers and
members of the Reserve Forces.
You must draw your Stakeholder Pension benefits on or before
your 75th Birthday.
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Must I take my Stakeholder benefits as a
pension?
At the time you choose to draw your benefits you can choose to
take up to one quarter of the value of the pension fund as a lump
sum. Currently these lump sum payments are tax-free.
The balance of the fund has to be taken as a pension, although
that does not necessarily mean you must immediately buy an
annuity. For further details of your options at retirement you may
wish to talk to an adviser. You can contact us by clicking on the
button marked ‘Make contact now’ shown on the right.
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What if I die before I draw my benefits?
The value of your Stakeholder Pension fund is normally returned
to your next of kin if you die before you draw your pension. It is
likely that the payment will be free of any Inheritance Tax.
However, this can not be guaranteed. You can give an indication of
those people you would prefer actually received the benefit were
you to die, either by placing your Stakeholder Pension plan in
Trust or alternatively by completing a ‘Nomination’ form.
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Which Stakeholder Pension will be best for
me?
Stakeholder Pension plans offered by the many different Pension
Companies all have to apply the same rules about contributions,
benefit structures and maximum charges. However the amount that
they charge, within the maximum charge of 1.5% per annum and the
choice of investment funds available is a matter for each of them
to decide upon.
It is important to have an understanding of risk when selecting
your investment funds. With so many different schemes to choose
from, we suggest that you seek advice before deciding the best
pension for you. If you need assistance then you can contact us.
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What do I need to think about when selecting
a Stakeholder Pension?
Check if your employer is setting up a stakeholder pension and,
if so, which Pension Company is responsible for running that
arrangement. It may be that this scheme might be suitable for your
needs.
If you already have a personal pension or are part of an
occupational pension scheme, check how much you or your employer
will be allowed to contribute to a new Stakeholder pension plan.
It is likely that you will wish to know how your contributions
are to be invested, All Stakeholder Pension Plans offer a default
investment fund but many offer a choice of funds where your money
can be invested. If your Pension Company does offer an investment
choice you should check that there are no extra charges for
investing in a fund that is not the default investment fund. |
