What amounts am I allowed to put into my Pension?
This depends on the type of pension you have. With an occupational scheme the
maximum that you can contribute is 15% of earnings. For a personal pension plan
the maximum contribution varies between 17.5% and 40% according to your age,
subject to the earnings
cap. In both instances, these amounts are gross - that means they include
the tax relief.
Levels and bases of, and reliefs from, taxation are subject to change. Tax reliefs
referred to are those currently applying and their value will depend on the circumstances
of the individual investor.
Contributions to an occupational pension scheme can sometimes be increased by
making Additional
Voluntary Contributions (AVCs) - thus increasing the benefit received at
retirement. Any AVC payments are limited to the usual limits.
If you have a flexible work pattern without a stable income, it is important
to ensure that the type of pension you have allows you to make premium payments
that match your lifestyle. This may include single premiums or stopping, starting
and suspending premiums to fit your cash flow circumstances.
What usually happens upon retirement?
When you reach the age you are entitled to draw your state pension at, you will
receive the necessary forms to apply for your basic state pension and the various
additional state pensions if you are eligible. Depending on the type of any other
pension you may have, you could take a retirement income between the ages of
50 and 75. For personal pensions the amount of pension paid depends on the value
of your pension policy at maturity and the annuity rates available at the time.
For final salary schemes, the amount paid will depend on how it is funded, the
length of service and membership you have and your salary in the years just before
retirement.
What about the new Stakeholder Pension?
Stakeholder
Pensions are intended to provide a better value alternative to
personal pensions. You can pay in up to £3,600pa including
the tax relief, without the need to have earnings. They are low cost
and have no exit or transfer penalties. Life
cover and waiver of premium are available in conjunction with
these new types of plan. You can use up to 10% of your contributions
to purchase additional life cover. The premiums are paid net of basic
rate tax. There is no tax relief available on waiver of premium (also
known as Pension
Contribution Insurance) contracts.
My employer says that I can have a stakeholder pension scheme
under the concurrency rules. What does he mean?
Basically this means that if your scheme is a final salary one (or what is called
an ‘old regime' money purchase) you can pay up to £3,600pa,
including the tax relief into a Stakeholder Pension Scheme, even if all your
relevant earnings are already linked to your occupational pension scheme. However,
you must not have earned more than £30,000 in one of the previous 5 years
(which cannot be earlier than 2000/01) and are not a Controlling Director.
There are different rules on concurrency for what are called ‘new regime'
occupational
money purchase arrangements. contact
us for further information.
Do I need to save for retirement?
With advances in medicine and healthcare it is now increasingly likely that your
retirement could last up to 30 years or more. The basic state pension is not
adequate to provide the standard of living that many people require; hence you
will need another source of retirement income to support yourself over these
years. The premiums paid into a pension can be substantial if you want to enjoy
a high standard of living in retirement. Sometimes, premiums can be more expensive
than the mortgage on your house. As ever it is important to make a considered
choice about what type of investment will work best for you.
If I have a Company Pension and retire early, will I face
any penalties?
In a final salary company
pension, the proportion of your salary which you continue to receive in retirement
depends on the length of time that you have worked for that company. So, if you
do retire early, the penalty is that your pension will be proportionately reduced.
This is usually straightforward to calculate but you must also be aware of any
extra penalties in your employer's scheme, which could work against you were
you to retire early.
Employers will often offer to waive early retirement penalties if they are looking
for volunteers for redundancy, or even to enhance pension rights considerably
for those who choose early retirement. This can be a windfall for those near
the end of their career who have just been holding on for enhanced retirement
income. In the case of ill health the trustees of the scheme can generally decide
whether to waive any penalties.
What happens if I leave my employer's company scheme before I retire?
This depends on how long you have been in the scheme.
If you have been a member for less than two years, you may be offered a refund
of your contributions (less 20% tax), a full value transfer to another scheme
or the scheme will ensure you receive your pension in due course (called 'retained
benefits').
If you have been a member for more than two years, you will be entitled to retained
benefits. Of course, you can arrange to have the value of the fund transferred,
but you should always seek expert advice if you are considering this.
What are the maximum benefits available from an occupational
pension scheme?
Broadly, the current Inland Revenue limit for the pension itself is two thirds
of your final salary, subject to the earnings
cap if it applies. It doesn't matter whether it's a final salary
or money purchase arrangement.
The current rules on the maximum lump sum depend on when you joined the scheme
and when the scheme was set up. For people who joined before 1987, it is 1.5
times your final remuneration. For people who joined after 1989, it is 2.25 times
the initial maximum annual pension payable to you. For people who joined between
those dates, there is a complicated calculation - it is worth checking
your position with the scheme trustees.
One thing to remember - you can't have both the maximum pension and
the maximum lump sum.
The limits mentioned above are the current ones and may change.
Is the Government thinking of making any other changes to pension law?
The Government pledged to look at allowing more flexibility in the purchase of
annuities in the April 2002 Budget. So it proposes to look at modernising pension
annuities and also report on simplifying pensions during the Summer of 2002.
To this end Alan Pickering was commissioned to undertake a review and report
on the current position and provide proposals. This report was issued in July
2002.
Hedgelands Financial Services Ltd, Hedgelands, Abbotskerswell, Newton
Abbot, TQ12 5PW
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Telephone
0845
165 1280
General Insurance
0845 165 1281
Fax
01626 332622
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