Individual Personal Pensions
There is no doubt that over the last few years, the pensions industry has endured difficult conditions. We have seen two major reforms of pension legislation, acute problems with company pension schemes and concerns about Equitable Life and others. It is perhaps not surprising therefore that the public has a fairly jaundiced view of the pensions industry and widely doubts the wisdom of "getting involved with pensions".
Despite all of this we believe that personal pensions remain a very attractive savings vehicle for retirement savings. In fact, in many ways the environment for pension investment is more favourable now than it has been for many years.
These are some of the major factors:
- attractive tax breaks remain in force for pension investment
- the rules on pension contribution are more generous and on benefits more flexible than previously
- there is a huge range of potential investments on offer from personal pension providers
- charges made by pension providers are low
This is a powerful combination of factors and these days there is simply no need for anyone investing in a personal pension plan accepting a higher level of risk than they are comfortable with.
People with existing pension plans should ideally review them before committing any further significant sums.
Stakeholder Pensions
The Government launched its Stakeholder Pensions initiative in April 2001, with the main objective of encouraging lower to middle earners to save for their income in retirement. A charging cap was placed upon Stakeholder Pension policies, which means that there are no initial charges, no fixed monthly charges, no penalties if you decide to transfer the benefits away from the pension provider and no penalties should you decide to take the pension benefits earlier than originally envisaged. The only charge the pension provider is allowed to apply to a Stakeholder Pension policy is the Annual Management Charge and this at present cannot exceed 1½% per annum of the plan value for first 10 years then reducing to 1% per annum.
All individuals (even non-taxpayers) can make pension contributions of up to £3,600 gross in any tax year without evidence of earnings, and will have to make a net payment of only £2,808. Basic rate (22%) tax relief is obtained by the pension provider and where appropriate higher rate tax payers can claim additional tax relief via self assessment. Stakeholder pensions were initially seen as 'off the peg' policies, but we believe it is still important that individuals take advice on the appropriate investment fund, and whether contributing to a Stakeholder Pension Policy disadvantages them in any way.
Self-Invested Personal Pensions (SIPPs)
As an alternative to a traditional personal pension plan run through an insurance company, it is possible to arrange your own plan via a Self-Invested Personal Pension (SIPP), administered by a pensioneer trustee company. This has all the advantages of the conventional pension plan, plus the ability to select your own investments.
These pension plans tend to be suited to individuals with larger sums of money who, in the hope of obtaining superior returns, are prepared to have closer involvement with their pension planning and particularly the investment strategy.
For more information about personal pensions including Stakeholder pensions and SIPPs, please use our Financial Services Enquiry form or ask to speak to one of our independent financial advisers.
Important Note: The value of an investment and any income from it can go down as well as up and you might not get back the original amount invested. The past is not a guide to the future.
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