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One problem which has occurred afterwards is that most Final Salary
types of Company Pensions, have guaranteed equivalent benefits to
the State SERPS Scheme, but unfortunately the individuals who Contracted
Out through Personal Pension Plans have no such guarantees
Occupational / Company Pensions
Employers can set up Occupational or Company pensions for the benefit
of their employees. And the general advice is that If any employee
has the chance to join a Company Pension it usually is advisable
to become a member This is because of the possible additional benefits
attached to the scheme such as, employer regular and/or lump sum
payments into the pension fund, death in service, ill health benefits
and possible beneficiaries pensions.
Such schemes will normally involve Employee contributions as well
either voluntary or mandatory. The main benefit of this type of
Scheme is that the pension is related to the Employees ‘Final
Salary’ or alternatively invested into a Money Purchase Scheme
where the amount of pension will be dependent of the value of the
fund at retirement which are similar to the Personal Pension Schemes.
Employees who leave before retirement have various options in respect
of their pension fund, depending on their personal circumstances.
When they come to retire, they normally receive their pension in
line with the rules of the Company Pension Scheme. If any person
leaves the scheme prior to their retirement date then they should
have their deferred benefits independently assessed so that they
can be sure that any preserved benefits continue to work for them
until they retire
Generally nowadays any Employer who chooses not to have the additional
expenses associated with having their own Occupational Plan, may
alternatively offer access to a Group Personal Pension (GPP) instead.
This is simply a collection of Personal Pension plans grouped together
to make administration costs more effective and to maximise investment
growth.
Under present legislation Companies or firms with more than 5 Employees
must offer by UK Law the access to a Stakeholder Pension or a suitable
alternative. The future is predicted that Employers and Employees
will be forced into making pension contributions at predetermined
levels.
Occupational Schemes have become expensive and more and more Employers
are choosing to move to GPP arrangements and possibly changing their
original Scheme into a deferred scheme for their members. The Government
is currently evaluating the prospect of a compulsory pension scheme
possibly called a “Personal Account”. In the next few
years therefore it may become mandatory that both the Employer and
the Employee must contribute to a pension scheme
RTP have the expertise to assist Employers and Employees unravel
some of the complexities within all pensions and provide unbiased
affordable cost effective solutions or options accordingly. Please
contact us for further information
Personal
And Stakeholder Pensions
If a Company does not offer a Pension Scheme any individual can
commence a Personal or Stakeholder Pension, which is simply a tax
efficient way to save for retirement. Personal Pensions were introduced
in 1988 by the Government to take the place of the previous Retirement
Annuity Contracts (RAC) and are designed to provide a regular income
when you retire, or a tax-free lump sum at retirement and a smaller
regular pension.
Additionally all Personal Pension Plans can also usually produce
a regular income for your dependants on your death after retirement
or a lump sum for your dependants on your death before retirement.
All contributions receive income tax relief, normally at your highest
rate or to the Employer via their accounts. Pension investment at
the present, grows free of United Kingdom Capital Gains Tax, but
tax will be paid on dividends received from any investments in UK
equities.
Stakeholder Pensions were introduced by the Government on 6th April
2001 incorporating minimum standards that companies must meet for
a Stakeholder Pension plan specifically relating to Fair Costs,
Reasonable Access and Flexible Terms. However these Terms do not
provide any guarantee of future returns or superior returns as compared
to normal Personal Pensions or any other schemes used for retirement
benefit purposes and the disadvantage may be that investment fund
choice may be limited. The rules for pension contributions into
both Personal and Stakeholder Pensions were relaxed to allow any
UK eligible person to now contribute, within limits to make regular
or lump sum contributions regardless of earnings or even if they
are members of an Occupational Pension. This also means that a person
can also make contributions on behalf of a minor to build up a retirement
fund.
There are alternatives to paying into pensions for example investing
into other areas such as Property or Individual Savings Accounts,
but there is still a need to have a pension strategy in place as
you may be just building your estate for the Capital Taxes Office
to reclaim 40% Inheritance Tax from your estate or quite simply
have to pay large amounts in Capital Gains Taxes.
Retirement is usually considered as the longest holiday and it is
at this time that individuals should be thinking of taking things
easy. At RTP, we share the belief, that even if retirement seems
a long way off or even just a few years away, there will never be
a better time to start planning for your future than right now.
Remember that each 5 years you delay you will have to double your
contributions to receive the same benefits.
Self
Invested Personal Pension Plan
A Self Invested Personal Pension (SIPP) is a modern form of personal
pension ‘wrapper’ which was introduced to the financial
market place in the late 1980’s and was originally very popular
with high net worth clients over that time. Directors and those
who ran their own business for example thought that investing under
a SIPP arrangement was beneficial as they could invest in a wide
range of investments provided they were allowed under the rules
laid down by the Inland Revenue.
Like other Personal Pension plans, a SIPP can receive either a transfer
value from existing pensions (with certain exceptions), regular
premiums or single premiums. As a SIPP is a form of Personal Pension,
it enjoys the same tax benefits as Personal Pensions in respect
of contribution levels and tax exemptions. In addition before retirement
if a person dies, the assets will be initially paid free of Inheritance
Tax. (Please note this situation may change in the future).
The Inland Revenue allows a wide range of investment choice, freeing
the SIPP to invest in a wide range of different types of investment
(otherwise known as Asset Classes). Example such as include: - Gilts
/ Shares (provided they are listed on a recognised Stock Exchange,
excluding AIM and OFEX), Investment Trusts, Unit Trusts, OEIC’s,
Bonds, Warrants, Cash Futures and Options, Second Hand Endowments,
Ground Rents, Land, Commercial Property (Residential in 2006) and
using your pension to raise capital
purchasing commercial property via a SIPP has proved to be a popular
investment with those in business. By using the fund accumulated
in their pension, together with a mortgage in some cases, Directors
and the self-employed who trade from commercial premises have found
that purchasing their premises to be a very tax efficient way of
expanding their business, whilst at the same time, improving their
own retirement provision. Several SIPP arrangements can be joined
together meaning that it is possible for all directors or partners
of a business to each own a share in a larger Commercial Property.
Pensions invest in different types of investments, including investments
based on stocks and shares, which carry different levels of risk.
The value of your investment can fall as well as rise and you may
get back less then you pay in.
Upon retirement a SIPP allows you to take your benefits in a number
of ways, including drawing an income directly from the fund you
have built up. This is known as income drawdown (or pension fund
withdrawal). Benefits can be taken in stages, as required, leaving
the remainder of the fund invested. This allows any investor to
take advantage of continuing investment performance and avoids locking
a pension fund into one particular annuity rate. Or the desired
option may be taking that type of Annuity arrangement This presents
the investor with a number of potential dilemmas, for example; with
such a wide investment choice and so many products on the marketplace-
Which SIPP presents the best value? What are the costs? And most
importantly-Is a SIPP suitable for me? Where is the best place to
invest?
There have been many changes to pension Legislation over the years
and in particular in April 2006 (A day) where many of the rules
were changed or amended. This can impact on both individuals and
Companies alike however collectively at RTP, we have many years
experience in advising in Specialist Retirement Planning and we
would be delighted to help with your retirement plans.
Retirement Options
Annuities
An annuity is a type of plan that you buy with spare cash or with
the funds that have been saved in a pension plan. In return there
may be a tax free lump sum and a regular income for the rest of
your life or, for certain types of annuity plans, for a fixed period
of time but in addition these can be single or joint life annuities
or even index linked annuities.
Purchased Life Annuities
As the name suggests this is utilising your own funds instead of
a pension fund to purchase an annuity. This operates in the same
way as when pension funds are transferred but to the individual
it has certain tax advantages, as some of the income is classed
as return of your own capital and only part of the annuity income
is interest and therefore taxable.
Compulsory Purchase Annuity
Compulsory Purchase Annuity may be the option that suits you where
the funds are derived from a Company pension plan funds and can
be transferred into another arrangement to provide better possible
benefits.
Open Market Option
This is where Personal Pension funds can be transferred to another
provider who will provide possibly superior benefits within another
annuity plan.
Enhanced Annuities
This is where if a person has certain health problems an ‘’enhanced
annuity may be available to provide better income levels for the
amount of funds as the provider assumes that the annuitant’s
life expectancy may be reduced.
Income Drawdown
The objective is to retain part of an individuals pension fund between
the ages of 50-74 and select a suitable investment fund within the
persons investment risk range and then draw an amount of income
anywhere between 35-100% of the single persons annuity rate for
their age based on the amount of residual funds which are left within
the fund. Before the income drawdown is taken it is normal for the
tax-free cash element to be taken as this cannot be taken at a later
stage. And residual funds will have to purchase an annuity. It is
very important to understand that the larger the income levels that
are chosen then the more the chances of capital erosion has of occurring
within the funds. Income Drawdown is an available option to have
however it is not suitable for everyone and there are various advantages
and disadvantages to this type of arrangement. All of these factors
are very important and need to be discussed at length with a suitably
qualified RTP Adviser before committing to this course of action.
Phased Retirement
Anyone planning to gradually ‘phase in’ retirement normally
need not have completed their total pension funding, as with some
provider companies there is the option of a Phased Retirement Pension
facility. It works where a retirement fund is segmented into much
smaller parts, which then enables some parts to be used to provide
income to an individual whilst the remaining segments continue to
be invested.
As the tax implications are more complicated it is not suitable
for every investor or those who cannot sustain the remaining investments.
As everyone has different circumstances it is important always to
take unbiased independent advice and RTP can assist in this area.
Contact us now and discuss all your options with a fully qualified
adviser.
Pensions and Divorce
Excluding the home, pension funds are generally considered to be
the second largest asset owned by a family. Normally a pension plan
is usually valued in terms of its capital transfer value at the
time of any divorce proceedings, and is valued in that way either
to be shared or offset any assets awarded to either partner but
this may not be actually half of the pension fund itself as different
circumstances may apply.
In consideration of this three options are normally in an attempt
to provide a greater flexibility and choice for both the divorcing
couple and the courts themselves, which are Offsetting, Earmarking
or Sharing.
Pension Offsetting
This means is that one partner's pension is traded against other
family assets possibly a house of equal value to give each other
an agreed value worked out by the legal representatives.
The advantage of this is that it provides a "clean break".
And proves to be an accepted common method.
Pensions And Earmarking
This is where a proportion of future pension entitlement is ‘’Earmarked’’
to the ex partner for a future benefit when the holder chooses to
retire. The main disadvantage of this method is that it is quite
complicated and difficult to work out understandably not many people
choose this method The pension holder retains control of the pension
and could possibly resist retiring until the age of 75, which may
not suit the other partner.
Pensions Sharing
Pension Sharing is another "clean break". where the pension
is shared and a portion of the pension value is agreed, and this
is given to the ex-partner, quite often this means that the part-pension
has to be transferred to another provider, separate to the existing
provider to avoid complications None of the above should be considered
as appropriate advice as all pension or retirement options should
be considered
You are strongly recommended to take suitable independent advice
to discuss your pension options, regardless if you are going through
a divorce or not
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