Pension advice

[gcol]

Can anyone shed any light on pensions for me? What's the difference between a stakeholder pension and a personal pension? Is there a generally prefered option?

 

[WoodYouLike]

Stakeholders is arranged by your employer, personal, well by yourself. Best thing is to contact an IFA, cause all situations are different. what is best suitable for one, isn't for someone else.

 

[gcol]

I'm not sure that's right. I looked on a site (scottish widows) and it says that both stakeholder and personal pension plans are personal pensions. But it's not clear (to me at least) what the difference is.

 

[WoodYouLike]

Point of view I guess: personal arranged versus arranged by employer (but both as personal pension).
It's a strange world out there Hence my advice to speak to an IFA. He/She will make it simple?

 

[gcol]

Ok then. Any idea what they charge for a consultation?

 

[WoodYouLike]

Clever Google
Do some research on all the adds that surround this topic
(I wouldn't know about costs, the only time I spoke to an IFA it was a freeby! But nonetheless he gave us a good piece of advice and we're sure we will go back to him when the right time comes along. We're in a bit of a different situation: Dutch pension plans - personal and former employer's etc versus UK rules and regulations)

 

[JohnD]

a stakeholder pension is a personal pension that meets certain government-specified criteria.

The most important one is that the charges are limited.

(Some pension and other investments schemes can have very high charges... e.g. 6% of every payment you make plus 1.5% of the value of the whole scheme every year. You can see that with an expensive plan it has to make a lot of growth just to cover its own costs. Salesmen like to tell you "our scheme has really great growth due to the high quality of our fund managers, so don't worry about paying a bit extra for high quality" but, over 10 years or so, hardly any fund managers consistently get better growth than the index average, and those that do have probably just been lucky. And if you're getting (e.g.) 6% p.a. gross growth, then taking 1.5% off that every year is a big lump. 0.5% p.a. charges is widely available on simple tracker funds. Be aware that commission-based "advisers" will strangely never seem to recommend a low-charge scheme because their initial and annual trail commission come out of the charges. Hence you are more likely to get trustworthy advice from an adviser that charges you a fee.

"Free advice is not free"

The availability of low-cost stakeholder pensions has pulled the rug from under salesmen and life offices that previously sold high-cost and inflexible schemes. However there are still some around that they will sell to mugs. If you already have a high-cost scheme, and have many years to go to retirement, it will often be worth you buting the bullet and transferring out to a cheap one; or at least stopping making additional payments to the expensive one and using a cheap one for future contributions. You are now alowed to contribute to as many different schems as you like, and can contribute each year an amount up to your annual taxable earnings in that year (unless you are a millionaire, see rules.)

Here's a useful site: http://www.pensionsadvisoryservice.org.uk/personal_and_stakeholder_pensions/

 

[WoodYouLike]

"Free advice is not free"

Beg to differ in this case Normally you're right, of course. But does that count for all 'free' advice? (asked on a DIY 'advice' forum )

 

[Nige F]

Unless you`re in your 20`s and earning £50k........forget pensions and anticipate POVERTY

 

[JohnD]

A couple of useful (?) bits of information:

If you have your own company, or a co-operative employer, the company can make contributions to your pension, usually as an alternative to paying you the equivalent amount as earnings. Since these contributions are not wages or salary, they are not subject to income tax, better still, they are not subject to Employee or Employer National Insurance (class 1 secondary).

When I was in business on my own, I think employer NI was 11% (I believe it is now 12.8%).

That means that instead of receiving £100 in salary, which I then paid into my pension, the company could contribute £111.

It is worth taking advantage of this if you are about to wind up your own company and go into employment.

Pension contributions are free of income tax. If you are lucky enough to be paying 40% tax, that means that you can put £100 into your pension fund, and it only takes £60 out of your pocket. A good wheeze!

Funnily enough, if you are unlucky enough not to be paying any income tax this year, but you happen to have a bit of cash, you can pay up to £2808 a year into a pension fund, and they will get basic-rate tax refund to invest into your pension, bringing it up to £3600! Another good wheeze!

 

[gcol]

Thanks for taking the time to post John - I appreciate it. The fog is begining to clear now.

 

[JohnD]

I love money

 

[empip]

Does the old trick with the 'stakeholder' for over 50's still exist?

Up to £3600 may be contributed each tax year, without any need for a member to have earned income.

40% tax payer - early retired civil serv' -
Buys S.Pen' outright...for £2160 (gets credited with £3600)

End of year - being over 50, takes 50% of the pension pot of £3.6k = £1.8k as lump sum.

Buys pension with remaining £1.8k making perhaps £72 per annum, the real cost of that investment being the £360 difference twixt lump and actual payment made, the annual return = approx 20.0 % gross.

Is this still a fact?? If so tis another nice little earner for the already well off! ...

 

[JohnD]

Not quite... the pension rules changed this year, and HMRC says they will be watching for anyone who recycles their pension lump-sum into another immediate-vesting pension as you describe for the late-life plumber
Lump sum is now 25% BTW.

IIRC the Tax return asks how much money you put into a pension, and how much you took out.

I believe you can do it in the year of your retirement only.

 

[empip]

Not quite... the pension rules changed this year, and HMRC says they will be watching for anyone who recycles their pension lump-sum into another immediate-vesting pension as you describe for the late-life plumber
Lump sum is now 25% BTW.

IIRC the Tax return asks how much money you put into a pension, and how much you took out.

I believe you can do it in the year of your retirement only.

Yes it is 25% for the lump .... But over 50 one can take early retirement, how can they restrict one buying a £3.6k per annum stakeholder pension per year?
...The rules governing personal and stakeholder pension schemes differ from those which apply to company schemes. You do not have to retire from your employment to be able to draw on the benefits and you may draw the benefits anytime after age 50...
50 will become 55 by 2010..