Radio Crosby Finance
More Information on Pensions
If having read this more information section on Pensions you would like to proceed on a 'Limited or Full Advice' basis please indicate below.
(I wish to proceed and be advised on Pensions only)
Alternatively, if you would like a representative to call you, to assist and advise in making your decision, please indicate below.
As commented on the previous page; not only is retirement planning a complex subject, it is also a long-term commitment on your part.
At Radio Crosby Finance we prefer to offer retirement planning on a 'Limited' or 'Full Advice' basis to ensure your investment is right for you.
For this reason, when our representative contacts you he will complete a personal fact find with you and ask a number of questions, for example:
Q1 Do you have earned income?
This is no longer a requirement in order to effect a Stakeholder Pension. You can contribute up to L3,600 per annum gross without proof of earnings.
Q2 Is your income regular?
In most pension plans it's possible to choose between regular monthly contributions, or single lump sum premiums, or indeed a combination of both.However your total contributions in any one tax year cannot exceed the Inland Revenue limits. Some providers also offer pension plans that can be stopped/started/transferred with little or no penalty. We will help you decide which one is right for you.
Q3 When do you wish to retire?
Whilst the answer is invariably NOW, the reasoning behind the question is that a pension plan is a long-term commitment and the funds in the plan cannot be accessed until (full/part) retirement, which is normally between ages 50 & 75.
Q4 Do you work for an employer?
Many employers have an employee pension scheme that they contribute to on your behalf.
Q5 Does your employer have such a scheme?
Q6 Can you join it?
Q7 Have you? Or, why haven't you?
Unless you have very good reasons for not joining, our 'Best Advice' must be to join your company pension scheme. If you have already joined and wish to may additional retirement provision, what type of company pension scheme is it; Final Salary/Money Purchase/Group Personal Pension etc. This information will help us to decide what type of plan is best for you.
Q8 If you are self-employed, do you have Net Relevant Earnings (NRE)?
Simplistically, NRE is the difference between your turnover less expenses and is the amount on which your tax may be assessed. The Inland Revenue limit the amount of pension contribution you may make, in each tax year, based on your age as a percentage of your NRE. As previously mentioned, you can contribute upto L3,600 pa without proof of earnings.
Q9 Do you work for your own Ltd Company?
Different Inland Revenue rules apply to Directors of Ltd companies. However, you could be Director and an employee of your own company with different rules for each.
Q10 Are you currently a member of, or contributing to, a pension scheme?
If so, what type of scheme is it? And how much are you contributing?
The government introduced Stakeholder Pensions on the 6th of April 2001 and is clearly anxious that Stakeholder works; if it fails to take off we could well see compulsion. Stakeholder Pensions will have to meet certain mandatory standards including:
A simple charging structure with limits on the amount that can be charged
The facility to stop and restart contributions without penalty
Transfers 'in' must be accepted and transfers 'out' must be penalty free
An annual information statement must be sent to members
And a governance procedure established, to safeguard the interest of members
Contributions of up to L3,600 gross p.a. can be made without 'Proof of Earnings'.
Stakeholder Pensions present many benefits, in particular the wide range of investors who may contribute, for example:
Children may contribute
Employees may contribute and can pay their contributions net of tax.
Non-earners may contribute without 'earned income'.
Non-earning spouses/partners can contribute.
Retirees can contribute.
Self-employed may contribute and can pay their contributions net of tax.
Individuals disqualified under current rules may contribute, such as:-
Directors who control investment companies.
Directors to whom the section 644 (6) (a) exclusion applies.
Directors who draw income mainly in the form of dividends.
The "working spouse" in an Executive Pension Plan can contribute up to L3,600 pa.
There is also the facility for earnings in one year to justify contributions for the following five years (and perhaps beyond) even where earnings reduce, or cease, in the intervening period. Members of occupational schemes (provided they are not controlling directors) with P60 earnings no greater than L30,000 per annum may contribute up to L3,600 per annum with tax-relief, into a stakeholder scheme . This will not affect the ability of such individuals to pay up to 15% of earnings to the main scheme.
Members of occupational schemes (provided they are not controlling directors) with P60 earnings no greater than L30,000 per annum may contribute up to L3,600 per annum with tax-relief, into a stakeholder scheme .
This will not affect the ability of such individuals to pay up to 15% of earnings to the main scheme.
The maximum level of charging within a Stakeholder Pension has been set at 1% per annum. There are to be no other charges in excess of this.
Employers who do not offer an Occupational Pension Scheme or an Exempt Group Personal Pension, and have five or more employees, will be required to give employees access to a Stakeholder Pension.
There will be no requirement for the employer to contribute to the scheme, but they will be required to collect their employees' contributions and pay them into the plan. Also, employees will not be required to join the scheme, even if they do not have a pension.
Employer contributions are payable gross, but relievable against the Employer's corporation tax or Schedule D tax liability.
It is important to understand how the rules work as it appears many smaller employers have so far misunderstood the impact of stakeholder on their businesses. At a series of seminars for employers run recently by one major Life Office, virtually all those present believed they would be exempt from the employer access requirements, whereas all but one were in fact not exempt
The following is intended to map out the impact of the regulations:
Step 1: Establish the total staff headcount - are there five or more employees. An employer need not comply with the access requirements if there are fewer than five employees, but note the definition at this stage is the number of employees and not whether they are full time etc.
Step 2: Establish the number of "relevant employees". There are five categories of employee who are not deemed relevant employees:
Those aged over 18 (and more than five years younger than the scheme's normal retirement age) who qualify for membership of an occupational pension scheme after 12 months employment
Those who have been offered membership of such a scheme, but decline to join and are now excluded from membership as a result
Those who have been employed for a continuous period of less than three months
Those whose earnings have fallen below the lower earnings limit in any one or more weeks in the last three months
Those not eligible for stakeholder because for example they are not resident in theUK
Any employee not in the above categories is a "relevant employee".
Step 3: Establish whether there is entitlement to join a "good quality" pension scheme set up by the employer. Thus, if every relevant employee over the age of 18 can join a Group Personal Pension and all the other exemption criteria are met then this would exempt the employer from the need to facilitate access to a stakeholder scheme.
All three steps therefore need to be considered before a conclusion can be reached on employer exemption. Employer exemption would only come into force if the following were applicable to the existing scheme:
Access must be available to all employees aged 18 or over within 3 months of their starting work.
The Employer operates payroll deductions on request
There must be no "extra costs" when an individual leaves the scheme. The regulations actually state that "costs or charges which have not previously been taken into account and which would otherwise have been deductible under the product terms had contributions continued or a transfer not taken place" are not deemed exit penalties. See explanation under "comment" below. Market value adjustments in respect of with- profit investments are not deemed exit penalties.
The Employer makes a contribution of at least 3% of employee basic salary and reflects this in the contract of employment. The Employer can make this conditional on the employee contributing also at a specified rate up to 3%. Thus if any employee does not wish to contribute, the Employer need not contribute anything and, since the exemption criterion has been met there will be no need to set up a stakeholder scheme.
If an employer has not set up an exempt Group Personal Pension before the 8th October 2001, then he must provide access to a Stakeholder Plan.
Personal Pensions: Anyone who is employed and not a member of an Occupational Pension Scheme, or self-employed with 'net relevant earnings,' can contribute to a personal pension. The only exception to this rule is for an employee who is in an Occupational Pension Scheme but has additional private earnings that are not covered by the occupational scheme.
There are maximum contribution levels based on your 'net relevant earnings', which are dependent on age.
For the tax year 2001/2002 they are as follows:
Age on 6th April % age of 'net relevant earnings'*
35 or less 17.5
* However, contributions on earnings above the 'earnings cap', currently L95,400, are not allowed.
There are no restrictions on the number of pension plans you can have, but the total amount of all contributions is restricted to your allowable percentage of earnings (as shown in the table).
Contributions can be made monthly, annually, by single lump sums or a combination of all three. Many people prefer the discipline of saving monthly, but as long as you remain within your allowable contribution level for the tax year, the choice is yours.
Benefits At Retirement
The benefits from a Personal pension can be taken at any age between 50 and 75. However, you are restricted to how these benefits can be taken.
At retirement you will have accrued a capital sum, which can then be used to buy a pension for life, or a reduced pension together with a tax-free lump sum of up to 25% of the fund value.
The amount of pension you will receive will depend on the annuity rates at retirement as well as the 'structure' of the annuity. For instance, an annuity paying a level income with no provision for your spouse should you die, will pay you more than one which is increasing in line with inflation and/or one that provides a 'surviving spouses' pension.
However, you need to bear in mind that annuity rates may not necessarily increase in the future and that the value of the pension fund could go down as well as up.
At present you would receive tax relief at your highest rate on any contributions made into a Personal Pension.
Both employee's and the self employed would pay contributions 'net' of basic rate tax and any higher rate adjustment would be made through a tax return. Therefore, for a monthly contribution of L100 an employee would pay L78* and the Inland Revenue would make up the difference. A higher rate taxpayer would then claim an additional L18* through their tax return.
* Figures based on tax rates for 2000/2001.
Additional Voluntary Contributions AVCs & FSAVC's
Only members of an Occupational Pension Scheme are allowed to contribute to an AVC/FSAVC.
The main purposes of making additional voluntary contributions are twofold:- Firstly, a member of an Occupational Pension Scheme will be limited, under Inland Revenue regulations, to a maximum amount of pension income dependant on various factors such as their salary at retirement and their total years service. Funding by way of AVCs / FSAVCs is aimed at making up the shortfall where an individual won't be able to have his/her main scheme benefits funded to the maximum.
Secondly, if they wish to retire earlier than the 'normal' retirement age of the Occupational Pension Scheme (e.g. 60/65), and the scheme allows them to, additional voluntary contributions would help them replace the benefits they may lose by retiring early.
Benefits At Retirement
An AVC is provided through your employer and typically administered by an insurance company. If at any time you decide to change employers and leave the Occupational Pension Scheme, your AVC would remain with your 'old' employer. The AVC benefits can then be taken prior to the main scheme if you are planning on early retirement.
An FSAVC is provided by an insurance company and unlike an AVC is not linked to an Occupational Pension Scheme. Should you change jobs and join another Occupational Pension Scheme you may still continue to contribute to your FSAVC. This enables the FSAVC to be far more flexible.
The benefits from an FSAVC can be taken at any age between 50 and 75, and can be taken independently of any occupational scheme, i.e. before, after, or quite simply to coincide with your chosen retirement date. The amount of income at retirement is dependant on the size of the fund and the type of annuity you decide to purchase (as explained under Personal Pensions).
However, you should take care not to overfund your FSAVC as this could lead to a repayment of tax to the Inland Revenue at retirement. This tax is deducted by the administrator at a rate of 32% (basic rate tax plus 10%) before making the repayment. This amount is entered on the members tax return and a higher rate tax payer would then be liable for a further liability. This would be the difference between higher and basic rate and chargeable on the grossed up figure. The net effect is a total charge of just under 48% for higher rate tax payers. In order to negate the chance of this happening, you should undergo a 'maximum funding quote' whenever you apply for an AVC or FSAVC.
The charges in an FSAVC are normally higher than in an AVC and are met entirely by you. With both AVCs & FS.AVCs all of the fund must be used to purchase an annuity, it is not an option to take a tax free lump sum.
Under the concurrency regulations, the government will also allow a member of an Occupational Pension Schemes to contribute to a stakeholder personal pension plan.
The main details are as follows:
Active members of occupational pension schemes, whether defined benefit or defined contribution, may pay up to L3,600 per annum to a Stakeholder Pension Scheme. The L3,600 figure is a maximum so the earnings/age related limits do not apply. The funding of a stakeholder pension is over and above the 15% that you are eligible to contribute to the occupational scheme.
The concurrency rules apply to any scheme which is subject to the new "integrated tax regime" and hence includes Personal Pensions as well as Stakeholders Controlling Directors and those earning more than L30,000 per annum will not be eligible to make concurrent contributions.
AVCs and FS.AVCs will remain available for individuals in these categories wishing to supplement pension provision. Earnings for concurrency purposes will be based on the amount included in an Employee's P60. A "certificate of eligibility" will need to be completed at outset.
Basically if in "the qualifying year", being any one of the previous five years, (but not earlier than the tax year 2000/2001) earnings did not exceed L30000, then contributions of up to L3600 per annum may be made to the scheme for the next five years.
At the five year point eligibility will have to be rechecked to justify continued contributions.
Benefits emerging from the concurrent arrangement can be paid in addition to the benefits from the occupational scheme irrespective of whether the latter is actually paying maximum benefits as prescribed by the Scheme rules/Revenue limits.
At Radio Crosby Finance we therefore advise clients who are considering an FSAVC, that it may be prudent to limit their contributions to a 'single' lump sum premium for this tax year, in order to maximise their unused pension allowance or to obtain a 'higher rate' tax rebate, and commence their 'regular' monthly contributions in the next tax year in a stakeholder pension.
The maximum amount that you can contribute into an AVC, or FSAVC, or both, is currently 15% of your gross pensionable earnings, less any personal contributions made into the Occupational Pension Scheme. This does not include employer contributions. In addition to this you can also contribute up to L3,600 per annum into a stakeholder pension without proof of earnings.
The company claims tax relief at source for both basic and higher rate taxpayers.
Executive Pension Plans
Executive Pension Plans are designed for directors of limited companies, their executives and key personnel. This also includes the self-employed who employ their spouse in their business.
The funding limits are more generous than those of a Personal Pension; consequently the potential retirement benefits can be greater.
Typically Directors tend to pay themselves a low 'salary' and high 'dividends'. Unfortunately, it is only the salary that is pensionable. Therefore, a 'maximum funding quote' must be obtained to calculate, based on your existing salary level and any 'retained' benefits from any previous pension arrangements, what you can expect to receive at your selected retirement date.
The result of this is the maximum allowable contribution for funding an Executive Pension Plan and is typically more than would be allowable under a Personal Pension.
Benefits At Retirement
This plan is a 'Money Purchase' scheme and as such does not guarantee you 'defined benefits' at retirement. Like a Personal Pension Plan, your contributions will be invested for you, with the retirement benefits you receive being dependent upon the performance of the underlying funds.
However, the retirement benefits you receive will be governed by the Inland Revenue final salary limits, it is therefore advisable, in the years leading up to retirement, to increase your salary in order to take the maximum advantage of these salary limits.
An Executive Pension Plan can provide you with an income in retirement in addition to any existing and retained retirement provisions. It also allows you the option of taking a tax-free lump sum within Inland Revenue limits.
Employer contributions are treated as a business expense and employee contributions attract tax relief at the member's highest rate of tax. Therefore, opportunities exist for personal and corporate tax planning in the same retirement planning package.
Employer's contributions reduce corporation tax whilst providing pension benefits. Therefore, where a member is the owner/part owner of a business this is a very tax-efficient method of taking money out of the business.
As previously mentioned; retirement planning is a complex subject as well as being a long-term commitment on your part. It requires professional guidance and careful planning to ensure that your current needs and future retirement objectives are best met.
Our highly experienced advisers will help guide you through the complexities of retirement planning, product and provider selection, to help ensure that your needs are met.
In order to minimise the charges in your plan; Radio Crosby Finance will arrange with the pension provider that we place your plan with, to take our fees for advising you in this matter as a regular monthly payment rather than as 'indemnity' fees, i.e. a single one off payment.
We will also supply you with a personal illustration, brochure and key features document outlining the main features charges/costs and fees paid to us for arranging this policy.
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