The pension market is large and complex. Over the years there have been so many changes to legislation that Pensions have become the black sheep of the investment market. However since 6th April 2006, Pension Simplification (known commonly as A-Day) effectively stripped the market place down and ‘simplified’ its objectives. As there are many Pensions arrangements that are available, it is essential that you seek advice – especially if you have multiple plans. Below we have highlighted some of the arrangements available and some important information regarding Pension Legislation. For a comprehensive review of your pension situation please contact us to arrange a free consultation with one of our specialist advisers.
Stakeholder Pension Plans and Personal Pension Plans
These are both private pensions set up with a pension provider. Tax relief is available on the contributions, thus reducing the net cost to you. They are intended to give you a second pension fund to enable a secure retirement in addition to that supplied by the State Pension. If you require, you can arrange for DWP (Department of Work and Pensions) contributions that would usually be paid towards your state pension to be paid to your private pension instead – this is called ‘contracting out’ and your ‘protected rights’ DWP payments will be paid into your private pension. Stakeholder pensions are low cost and flexible with the charges being limited by statute. Personal Pensions often have comparable charges and usually benefit from a greater choice of investment funds, although law does not cap their charges. This is a diverse and competitive market place and in order to match the correct pension to your needs it is vital you seek advice from an Independent Financial Adviser.
Self Invested Personal Pension (SIPP)
This is a type of personal pension that extends the range of investment choices to include all asset classes permitted by law. A SIPP may be individual, or part of a grouped arrangement. These schemes tend to be popular with high net worth individuals. SIPP plans allow the holder to make their own investment decisions whilst managing to sidestep both income and capital gains tax as SIPP plans benefit from the same tax relief as a standard private pension plan. The Inland Revenue has a full listing of what can be invested into a SIPP and currently these include unit and investment trusts, equities, cash deposits, shares and commercial property. The same lifetime allowance and yearly allowance rules as outlined in the pension simplification section still apply.
Drawing Benefits at Retirement
Pension schemes are structured to accumulate pension funds, which are to be used at the member’s retirement to pay the cost of providing benefits. The individual members normally have a great deal of control over timing and how these benefits are structured (eg in terms of pension commencement lump sum, indexation of benefits etc). MacRobins Ltd would offer consultation and advice as necessary for members approaching retirement.