Personal Pension – Why you need to act sooner rather than later
Charges made to pension plans have changed a lot since Stakeholder pension plans became available in 2001. Many individuals with old style pension plans find that that their pension plan is suffering very high charges either monthly, annually or both and it may well be possible to transfer to another pension provider with a single lower charge. For instance some older style pension plans are charged a 1.00% annual management fee, a Bid/Offer spread charge of 6.25% and a monthly policy fee of around £3. Therefore the more you pay in and the larger your size of fund, the more you lose to charges. Whereas a new provider may well make a simple charge of 1.00% of the total fund value.
Companies that have not yet changed the charging structure of their pension plans are:
- Abbey Life
- Allied Dunbar
- AMP, Britannic
- Canada Life
- CIS
- Eagle Star
- G E Life
- General Portfolio
- Halifax Life
- HSBC
- Laurentian
- Liverpool Victoria
- MGM
- Nationwide
- National Mutual
- Pearl Assurance
- Royal Liver
- Royal London
- Scottish Life
- Skandia
- Swiss Life
- Winterthur
- Zurich
With-Profit Funds – why you need to act now
With Profits personal pensions have generally performed worse than the Unit Linked plans with little or no return in recent years. Many of these funds have already used all or most of their reserves subsidising bonus rates declared to individuals in years when equity markets have fallen which has resulted in a negative return to the fund itself. Although some companies are still offering a Final Bonus on Transfer, due to the falling stock market several providers have already applied an MVR or market value adjuster, in other words a penalty on transfer? Therefore careful consideration should be given when deciding on a possible transfer of your pension plan.
Company Pension Schemes – Final Salary
We do not give advice on this type of pension scheme.
Money Purchase Pensions
Money purchase pension plans will continue to grow in line with the underlying investments and further contributions that are made. Income and tax free cash can at the moment be taken from the age of 50, however in April 2010 the earliest you would be able to take these benefits will be age 55.
Contracted Out Schemes
Many Company pension schemes are ‘Contracted-Out of SERPS and S2P’. This means that the pension plan provider takes responsibility for that part of your State Second Pension (S2P), previously called SERP’s. When contracted out your National Insurance contributions are reduced and once a year the Government make a payment into a pension plan of your choice, which is then invested. Since the 6th April 2006 you can now take 25% tax free cash from this part of the fund once you have attained the age of 60. It is widely believed that in 2012 the Government will contract people back into the State Second Pension and then will no longer make contributions to any pension plan.
Self Invested Personal Pension (SIPP)
Is a type of pension plan that provides you with a greater choice to invest other assets, besides your normal fund investments. Most other personal pensions allow you to select from a limited choice of funds which to invest your monthly contribution in.
A SIPP is different in that it allows you to add a wide range of assets to your plan such as Stock and Shares, Unit Trusts, OEIC’s, Gilts, Life Policies, Commercial Property and Cash. In essence the SIPP enables you to select the investment/asset.
Many clients like the fact that they are in control of their own pension fund, rather than relying solely on the funds offered by the provider. You do become the adviser and you do make the decisions – would you have the time to actively manage your own money?
If you like the idea and would like some professional advice, our advisers will be delighted to help.
Pensions and Divorce
Divorce can create financial difficulties. The pensions of both parties will be considered by the Courts.
There are three ways of handling the division of pension rights in a divorce, however since new rules were introduced in December 2000 as follows –
Offset
Offset takes into account the value of pension rights as part of the overall assets of the divorcing parties. The divorce settlement then divides up the matrimonial assets, leaving pensions untouched. So, for example, a common situation would be for the breadwinner to retain their pension rights, but to transfer other assets – typically an interest in the family home – to their spouse. The end result is often that one party ends up with assets but no pension, while the other has pension, but few if any assets.
Offset remains the popular way to deal with pensions on divorce because –
- It is relatively easy to implement, provided there are enough non-pension assets available.
- It does not reduce pension entitlements
- It is widely understood, which is more than can be said for earmarking.
Earmarking
Earmarking was introduced by the Pensions Act 1995, but to date has not proved popular. The basis of earmarking is that the Court issues an order to pension scheme trustees requiring that a proportion of the member’s benefits are paid directly to the former spouse when the member retires. In effect a deferred maintenance order. The pension is fully taxed as the member’s income and no adjustment is made to their lifetime allowance.
Pension Sharing
Pension sharing is available for divorces where the petition was filed on or after the 1st December 2000. As its name suggests, the Court is able to divide pension benefits between divorcing parties, giving each party control of their share of pension benefits and thereby achieving the clean break which earmarking does not. Unlike Earmarking, each party is responsible for their own tax.
Because it offers a clean break and has individual control, pension sharing is widely seen as superior to earmarking. There is evidence that pension sharing has become more popular than earmarking ever was.
How to Apply
Financial advice can only be a positive thing when making personal contributions or additional contributions to a pension, whether a personal pension, stakeholder pension, group pension scheme or voluntary contributions to Free Standing AVC’s., not forgetting pension tax relief. It is vital to arrange help when considering retirement planning as you need to be fully aware of your chosen retirement age and the retirement income you will need to live a happy and fruitful retirement. When purchasing the annuity that will pay you your income in retirement or, if a drawdown or phased retirement plan needs to be arranged all of this can only happen if you are saving for retirement correctly, in other words pension planning is a must, especially when early retirement is being considered. To that end we ask that you complete the form opposite and email to us so that we can discuss your future in more depth. As we are based in Shropshire we prefer to discuss your needs by phone or email, although for a fee a face to face meeting can be arranged.
So, if you would like to arrange a stakeholder pension or personal pension or, if you have an existing personal pension and want advice with regards to pension planning, personal contributions, early retirement, pension tax relief, income in retirement, or if you need help with additional contributions to a Free Standing AVC, or if you want to discuss pensions in general including company pension schemes, drawdown or phased retirement, please complete the enquiry form or give us a call or email us – an initial consultation over the phone is always free and non-obligatory.
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