Personal Pension

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!

What are the Different Types of Company Pension?

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Although company pension schemes may sometimes vary from company to company, it still typically categorized into two general types. These two types are final salary and money purchase scheme.

In a final salary scheme, the amount of pension fund will be based on two factors: the amount of your salary and the number of years you have been under the scheme.

In some instances under this scheme, you may only take your benefits until you reach 65, but some earlier. Also under circumstances, you may be given the option to take part of your pension as a tax-free lump sum and will receive smaller monthly income.

While in money purchase scheme, your pension will be based on how much you (the employee) and your employee have contributed and the interest that contribution has produced. The fund that this contribution has produced will be used at your retirement to provide your pension, commonly purchasing a regular income or what is called an annuity.

But at some instances, you can have the choice of taking part of your pension as tax-free lump sum, and the remainder will be used to buy annuity.

Note that how much will the fund will provide is computed using an annuity rate. This rate is dependent on factors like gender, age and interest rate at that time.

Standards for Stakeholder Pension

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Although it is a type of personal pension, a stakeholder pension is much different from other of its type. It needs to meet some necessary minimum standards in accordance to the law. These are to make sure that they offer flexibility, security, and value to your money.

And the following standards that a stakeholder pension should meet are firstly, Flexibility. It should be flexible enough that you:

  • Can change, stop or re-start your payments whenever you desire. And there should be no penalty if you do so.
  • Can start payments for as low as £20. And these could be given even at less regular intervals, not just weekly, monthly, etc.
  • Can switch to different providers without being charge of any when doing so.

Next is Security. It should be secured enough that it is managed by an approved stakeholder manager or trustees. They have the responsibility to ensure that the said scheme has accomplished all necessary legal requirements.

And lastly is Limit on annual management charges. It should be that for the first ten years that you hold the scheme, managers should charge fees of up to one and a half per cent of your pension fund. And for the following years, it should be up to one per cent.

Why Do You Need A Pension?

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Most people think that retirement is as easy as submitting your paperwork and waiting for their pension to arrive. Unfortunately, in a time of economic instability, relying on company pension may not be enough. Hence, it is important that you take steps in securing your future by getting pension advice.

If you are looking forward to an abundant lifestyle when you retire, then you have to start saving for a personal pension as soon as possible. This is especially important if you do not have access to a company pension and have no other means of saving for the future. Also, the SIPP Pension plan offers a tax efficient way of investing. An SIPP pension allows you to invest in a range of funds and it allows you to stop, start or change your contributions anytime you want to.

In order to make personal pension plans to work for you, you have to maintain a sense of balance. If you are earning a small wage and is trying to scrape by, then don’t put in a huge slice of you income to your pension because this means you won’t have enough money to spend for your daily needs. But if you can afford to start saving, then you should especially since most companies allow contributions as low as £25 as well as allow you to take payment breaks without penalties.