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What to Know about Stakeholder Pension

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Being a flexible type of personal pension, defines this scheme. Known as the stakeholder pension, it is so flexible that you could change, stop, and even re-start your contributions whenever you want. And if that does not make it flexible enough for you, it also has limit on annual management charges and very low minimum contributions.

And this feat is not just for show. It should pass minimum standards defined by law to ensure that the service it offer is flexible, secured and gives value to your money.

This, by the way, works just like any other money purchased pensions. To increase your fund, you need to contribute money. And thru a certified manager your fund will be invested.

And based on your contribution and the way your fund’s investment have performed you will know what your fund’s value is. In other words, to increase its value, you need to contribute regularly to your fund, and hope that its investment will perform well.

Though that doesn’t mean that you’re compelled to contribute at all times, remember that because of its flexibility, you are allowed to change, stop and/or re-start payments whenever you desire. Though stopping will not be a good idea, for it will only lessen your fund.

Info on Tax Relief and Personal Pension

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Do you know that the government encourages everyone to save towards pension by having tax relief on contributions? Isn’t it great? Not just you make sure that with this long-term investment you have sufficient income on retirement, but you also earn more in the process. Doubting its possibility? Here’s how tax relief works.

For example, for every amount you save on a scheme, 20 per cent will be taken by your provider from the government. This 20 per cent basic rate will be the tax back.

Meaning to say, if you have a higher tax rate, definitely you will earn higher amount from tax back. And not to worry, even if you don’t pay tax you are still entitled with the basic rate of tax relief.

And to have tax relief from your pension contributions, you only need to apply for a personal pension scheme. This type of scheme is available to those whose:

  • Unemployed but has the capability of paying into a plan
  • Self-employed
  • Earning modest amount of income, but still wants to top up the amount they receive from a company pension
  • Employer does not give any company pension scheme
  • Capable of paying into a company pension but choose not to.

Basics on Pension and Personal Pension

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Pension is the term used when we refer to a retirement benefit. It can either be acquired by if you paid into a pension or if your employer paid your pension benefit while you are still working.

And be warned not to mistake it with some Social Security programs. They might look similar with each other, but S.S. programs are administered differently. To differentiate them, S.S. programs are government funded while the other one is privately funded.

Pensions have different types of scheme, like for example a personal pension. It can be availed by anyone, even as young as 18 years old, and benefits can be claimed anytime from age 55. Currently it is the most popular scheme to those who don’t have access to company pensions. To avail it, all you have to do is pay or contribute to providers or financial organizations, which are typically insurance companies, banks, etc.

It is available to anyone whose:

  • Unemployed but has sufficient money to pay into a plan
  • Self-employed
  • Employers does not offer any company pension
  • Salary is not that big but desires to put up the amount they acquire from company pension
  • Those who choose not to pay into a company pension even given the option.

Essentials about Personal Pension

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If you are interested in availing personal pension as your future investment when you retire then this article will be very helpful.

Availing a pension scheme, it may be personal or company, you should know first whether it suits your situation or not. And to know that, the following are just some of the situations that it could be applied:

  • If you are unemployed but you are capable of paying a pension plan
  • If you are self-employed
  • If your employer does not provide a company pension scheme
  • If you don’t want to pay into a company pension

And in contrast here is an instance where it is not applicable:

  • If your employer, of course, offers company pension

Because availing a pension plan is a delicate matter, there are other important factors that should also be considered when availing a scheme, aside from just knowing whether  if it suits the situation you are currently in or not. And these financial decisions are:

  • How will your contributed money be invested?
  • What are the rules on payments or contributions?
  • For setting up your pension how much will your provider charge you?
  • For administration how much will your provider charge you?

What is a SIPP pension?

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In this day and age, different kinds of pension schemes are available. The three common type of scheme are the personal pension, company pension, and the new popular type which is the SIPP pension.

Personal pension is available to you even if you are employed, self-employed, or even an unemployed individual. It has a flexible kind of scheme known as the stakeholder pension.

Company pension is a scheme that is characterized into two types, which are money purchase and final salary (or ‘defined-benefit) scheme.

SIPP or also known as Self Invested Personal Pension is the type of scheme that allows you to a wider assortment of investment options. In this you are allowed to even invest into commercial properties and shares. This is available to both individual and companies. As for companies it is called as Group SIPPs.

And recently, some of the providers have commenced a new type of product. This product is known as the Family SIPP. This SIPP will allow individuals to form groups (it can be a group for family members, friends or business partners) and collect their pension arrangements into a single scheme. This SIPP Pension scheme will allow them more flexibility for planning their retirement.

Difference between Company Pension Scheme Types

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What are the two types of company pension scheme? And what are the differences between the two? If these two questions are currently going thru your mind, then good for you, for this article will answer these two questions.

The two types of company pension scheme are money purchase scheme and final salary (or defined-benefit) scheme.

In money purchase scheme, on your behalf, your contributions (and those of your employer) are invested by a professional manager or insurance company. In money purchase knowing in advance the value of your potential pension will somehow be impossible. This is because the value is dependent on the performance of the investment itself.

While in final salary scheme or sometimes referred as defined-benefit, all the money you contribute is placed into a single fund, which will eventually provide for all its retired members. And the value will eventually obtain is based on your salary and your years under the scheme.

Note that under this final salary, it can run out of money, normally when the amount it has promised to pay out in the future – or the amount it has to pay out now – is more than the total value of investment. And when this happens a support is available to compensate its members.

What is Unsecured Pension?

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In a company pension scheme, specifically the money purchase scheme, to provide you pension on your retirement the fund that you as the employee and your employer have raised will be normally used to buy annuity. Annuity is a regular income; you will receive it annually.

But what if you are not yet interested in buying annuity, then you should decide on having unsecured pension for the time being. Also known as income drawdown or income withdrawal lets you obtain income from your fund which continues to be invested in the scheme, until of course you decide to have annuity.

Income drawdown is commonly used by retirees because of the number of advantages if typically offers. Some of these advantages, which are truly hard to resists, are the following:

  • Opportunity to have control over your money while it is invested.
  • Income flexibility. In this advantage, you can vary the period of time when will you take your profits; it can range from monthly to yearly. Even the amount you receive can either between minimum and maximum limits.
  • Opportunity to choose your own death benefits. Not just confined to the normal options that annuity offers as death benefits.

What is Stakeholder Pension?

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What is Stakeholder Pension?

It is a type of personal pension that is flexible. It is so flexible that you could stop and re-start your payments whenever you desire. It has also minimum payments that are so low, which is aside from the limit on annual management charges that it has.

It works just as like any other type of money purchase pensions. You pay money into your scheme to increase the amount of your fund.

On your behalf, this scheme’s manager will be the one to invest your pension fund. Aside from the amount you contributed, your fund’s value will be based also on how well the fund’s investments have performed. Meaning to say, if you want the value of your fund to increase, you should of course pay your contributions as regular as possible.

But in case you can’t pay regularly, it is alright, because due to the schemes flexibility, you could stop your payments, and just re-start it whenever you can. Although when you stop, you will have a smaller fund.

Take note also that with stakeholder pension, most typically wait until they’re 60 or 65 years old before acquiring from their fund. But of course, if you desire, this benefit can already be used even while you are still working.

What are Personal Pension and Tax Relief?

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Personal pension is a form of retirement benefit that is normally available to individuals that are 18 years old, and its benefits can be acquired anytime from 55 years old. It is the best choice for you if:

  • You are self-employed
  • You only have a modest amount of income
  • Your  employer does not give any company pension scheme
  • You have the option of paying into a company pension, but you choose not to; or
  • You are unemployed but you can afford paying a plan.

It is a very advantageous type of pension because of your chances of saving while investing on your future. Saving while investing is possible through personal pension, because for an amount you contribute on your pension scheme, a normal rate of 20 per cent is claimed as tax back by the provider from the government.

So in other words, if you pay at a higher tax rate, let us say at 40 per cent, you can get 40 per cent tax relief on your contributions. And if you are at a tax rate of 50 per cent, you have a tax relief on your contribution of 50 per cent.

And another good thing is even if you don’t pay tax, you can still avail the basic rate of 20 per cent tax relief.

Tax Relief and Pensions

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Did you know you can take advantage of tax relief from the contributions you make to company and personal pension? This means that your contributions will be topped up with extra money from the government. Typically, the higher your tax rate is, the bigger your tax relief will be. For example, if you are a basic tax payer you need to contribute around £80 to see £100 reflected on their pension. On the other hand, individuals with higher tax rate need only contribute £60 to see £100 on their account.

Basic taxpayers automatically get the tax relief since the personal or company pension firm will take care of it for you. The downside to this is that you will need to reclaim the difference between the basic and the higher tax rate when you submit the self assessment tax form. On the other hand, claiming the tax relief is more complicated for individuals with higher tax rates since they will need to submit several documents before the tax relief is finally reflected on their account.

Pensions are one of the few ways you can get tax relief from the government. Unfortunately, there already are rumors saying that tax relief for individuals with higher tax rate will be removed soon. At present, tax relief for those with incomes over £150,000 is fixed at 20% while those with incomes over £180,000 can no longer take advantage of this benefit. So save up today and secure your future. Get pension advice from the experts!