Stakeholder Information for Employees and the Self Employed

 

Q  What is a Stakeholder Pension? 
A
 Essentially it is a Personal Pension with the following main features:

  • The provider can only make an annual charge of no more than 1% of the fund. It can make no other charges.
  • The minimum contribution may be no higher than 20.00.
  • Contributions may be stopped, started or varied at any time without penalty.
  • No financial penalties on transfer.

Q  Is Stakeholder a State or Private Pension? 
A
  Private           

 

Q  Does my employer have to provide a Stakeholder Pension Plan? 
A
  In most cases, yes. However you can choose not to join this plan and take out one on your own.

 

Q  Will my employer make a contribution to my plan? 
A
  Not necessarily. They are not obliged to do so.

 

Q  I am already in my employers pension plan, do I need to do anything? 
A
  Probably not, but you should check with your employer who will either already have exemption through the current plan/scheme in place or will have to introduce a Stakeholder plan.

 

Q  I have my own Personal Pension Plan should I do anything? 
A
  Not necessarily. You could ask advice on a switch to a Stakeholder Plan, which may be advantageous, but not always.

 

Q  What about tax relief? 

A  It is the same as with Personal Pensions - contributions by the employee are made after deducting basic rate tax.

This also applies to children and non-earners even though they are not taxpayers.

It also now applies to the Self-Employed who previously have always made pension contributions gross and then claimed tax relief through the tax return.


Q How much can I contribute?

A The minimum amount regardless of earnings is anything up to 3600pa gross. The maximum depends on your age and earnings as follows: -

Age at April 6th

Max % of earnings

Up to 35

17.5%

36-45

20%

46-50

25%

51-55

30%

56-60

35%

61 or more

40%

Earnings in excess of the earnings cap, currently 105,600 (2005/2006), cannot be taken into account. These limits increase dramatically after A-Day.


Q If I am a member of an Occupational Pension Scheme can I also take out a Stakeholder Pension?

A Yes(unless you are a Controlling Director), up to 3,600 gross pa, provided your earnings do not exceed 30,000pa. If they are in excess of  this amount you may only use an avc/fsavc plan.

 

Q How much tax free cash can I take?

A Up to 25 % of the fund. The remainder must buy a pension.

 

Q What is the minimum age I can take my pension?

A Age 50 although there are proposals to increase this to age 55 from 2010. You may also continue working and take the benefits.

 

Q What happens if I die before retirement?

A The pension fund - i.e. the contributions plus the growth at that time will be paid tax free to your appointed beneficiary. You can buy extra life cover with your pension plan if you wish. Special rules apply to transfers from occupational schemes.

 

Q How many Stakeholder Pensions can I take out?

A As many as you like so long as you don’t exceed the maximum total contribution levels each year.

 

Q How do I get Tax Relief

A You make your contribution after deducting basic rate (currently 22%) tax.

e.g. gross contribution

100.00

Amount you pay to pension provider

78.00

The pension provider then reclaims the difference between the gross contribution and the amount you pay – in this case 22 – from the Inland Revenue and adds it to your plan.

 

Q What about higher rate tax relief?

A If you pay tax at 40% then you would reclaim the difference between 40% and basic rate of 22% i.e. 18%, from your local tax inspector who will adjust your tax coding to compensate you.

 

Q Can I keep my pension going if I am not earning?

A Yes. Contributions up to 3600 gross pa may be made without any earnings .

This means that low and non earners will regardless of their income be allowed to contribute up to this much and ignore the “percentage of earnings” rule.

Also, the contribution limit can be based on the highest year’s earnings in the previous five. This has the effect that a contribution justified by earnings in the current year may be made for a further five years regardless of (any) earnings .

 

Q How do I know how much my pension is worth?

A Your pension provider can supply you with this information at any time.

 

Q If I have a choice of investment funds which should I take?

A It depends on your attitude to risk. If you have a moderate attitude to risk you may prefer the Managed Fund. For higher risks you can choose one or more of the international funds e.g. North America, Japan, Far East, Europe. 

If you have a more cautious attitude to risk or you are close to retirement a Cash Deposit Fund or Gilt Fund may suit. Where possible you should seek advice.

 

Q How much should I be paying into my pension?

A As much as you can afford to achieve your desired retirement income! For a more precise figure try the Pension Calculator.

 

Q If I take out a Stakeholder Pension will it mean any state benefits are reduced? 

A No. State Pensions are currently not 'means tested'

 

Q I am a member of a Group Personal/Stakeholder Pension Plan (GPPP) – is this different to a Stakeholder Pension?

A In most respects no. A GPPP is still a Personal/Stakeholder Pension Plan and has all the same rules as a Personal/Stakeholder Pension Plan.

The only difference is that contributions are (usually) also paid by the employer and, the employee contributions are deducted from pay by the employer and paid collectively for all employees, to the provider. There may also be a difference in charges.

 

Q Why can’t I take all my pension in cash?

A Because the object of a pension is income. The government allows the valuable tax reliefs on pensions so that you become income self sufficient and not reliant on the state . You may of course take a tax free cash sum as a part benefit.

 

Q What if I cannot pay my contributions due to illness or injury?

A You can in many cases take out Premium Contribution Insurance.

 


 

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