Pensions

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Who is eligible to contribute to a UK Personal Pension or Stakeholder Pension?


1. Anyone who is resident and ordinary resident.
If you are born and brought up in the UK and your father is British you are resident, ordinary resident and domiciled, with all that, the revenue love you! Ordinary resident If your home is in the UK you are ordinary resident, even if you work overseas and become non -UK resident (by being away for a full tax year) but stay ordinary resident as your home is in the UK. On the other hand if your boss comes over to the UK to work for over 3 months, he/she will become resident and if they buy accommodation, will become ordinary resident.

Resident
The status of an individual in any tax year.
Can be resident in more than 1 country in a given tax year.
To be a UK resident you must live in the uk for a least 6 months during the tax year.
Visit the UK for at least 4 consecutive years staying for an average of at least 3 months per year.

Domiciled
The country which an individual regards as his permanent home
In English law you can only be domiciled in 1 country at a time
At birth you get your fathers’ domicile
To change you have to move and buy a house, have a permanent contract, take out nationality.
Husbands and wives are taxed separately, therefore residence status must also be determined separately.

2. A Crown Servant
3. The spouse of a Crown Servant

However if you cease to be any of these you can still contribute for another 5yrs.

The main problem with pensions is that we live too long!

The average male (is there one?) lives till age 79, and the female to age 84.
When the major employers started company pension schemes in the late 30's and the employees' came to take their benefits most lived for about 5 years after retirement. Therefore the pension scheme only had a small proportion to pay the widow.

Saving for a Pension

Income in retirement - is commonly known as a tax efficient saving vehicle.You attract tax relief on your contributions at your marginal rate of income tax, and on the fund where the money is invested.

How much can I put in?

This depends on your circumstances, employed, self-employed or you have no income. As a rough guide from age 20 to 30 you should be putting in about 6% of total earnings, 35 to 45 should be 10% and 45 to early 50's 15%. In all honesty for those over that, pension planning, unless you and possibly your employer make very serious contributions. For that age group other forms of investment may be the answer.

Vehicles for Pension Planning

  • Stakeholder
    Low charging plan, no income verification, maximum contribution £3,600 gross p.a. Available to any UK resident from ages 0/75yrs (useful for grandparents to pay into for grandchildren). You can be self employed, non earner, employed or even a member of a company pension scheme but you must not earn over £30,000. Benefits at retirement are tax free cash and an income for life, from 50/75yrs.

  • Retirement Annuity Contracts
    The forerunner of the personal pension - now no longer available to new entrants. Contributions are paid gross, with tax relief for the employed via their tax code. For the self employed the tax relief is set against profit (if no profit, tough!). Benefits taken from 60/75yrs, the tax free cash is 3 times the annuity remaining after commutation. Contracts after 17th March ‘87 limit the tax free cash to £150,000 (lucky you!)

  • State 2nd Pension
    This is the equivalent of the old SERPS personal pension remember, you contracted out of the additional state pension (payable on top of the basic old age pension) that you would have been entitled at retirement. Instead you had a proportion of your National Insurance contribution and that of your employer paid into a personal pension. The more you earned, up to a certain limit, the bigger the rebate, with this new one it is designed to help the lower paid and increase the amount of their rebate. From both, you only receive a pension (annuity).

  • Personal Pension
    Been out for some time, you will need to have earnings - the amount you can contribute depends on your age and how much you earn. Available to self-employed and employees who are not members of an occupational scheme. Benefits available from 50/75yrs, tax free cash and an income for life.

  • Self Invested Personal Pension
    The same criteria as personal pensions, but the member has the option to invest in commercial property, shares and unit trusts (see investments).

  • Directors and Executive Pension Plans
    These plans are different from personal pensions as the amount that can be contributed is related to salary, length of service, which allows the company to invest quite large amounts of money, thereby reducing the corporation tax bill substantially. Good isn't it? The benefits are from 60/75years, the tax-free cash is dependent on salary and length of service.

  • Small Self Administered Schemes
    The same as the directors, but allows the company to invest in commercial property, shares, and unit trusts (see investments)

  • Free Standing Additional Voluntary Contributions
    Planning tool for members of occupational pension schemes to top up to the maximum entitlement for a pension .The maximum contribution is 15% of salary less any contribution to the main scheme, and in most cases the income (no cash) is taken at the same time as the main scheme

  • Additional Voluntary Contribution
    Most company schemes offer this type of pension. This allows members to make up the shortfall to the maximum pension allowed for forty years service.

  • Occupational Pension Schemes
    The company pension scheme offers its members the maximum pension at retirement, or a reduced pension plus a tax-free cash sum. The calculation is based on years service (40 being the maximum) and salary, together with a widows / widowers before and during retirement.

    The 'Rolls Royce' of pensions will offer a non contributory scheme, extra years for long service, 2/3rds salary as a pension or 1 and a 1/2 salary plus a pension. You would probably have had included full income protection to retirement, and life assurance of 4 times salary.

  • Section 32 Buy-out
    This type of pension is used when company pension scheme close as the object of the fund managers is to preserve the guaranteed minimum pension, that the seceding scheme had to guarantee. The revenue limits to benefits at retirement are the same as the seceding scheme.

  • Pension Transfers You can transfer paid up benefits from preserved pensions to a personal pension (the procedure is very strict, as it has to be very much in your interest and not just because you dislike your former employer). Transfers are also allowed from other pension schemes, where it can be proved that the scheme is expensive, plus other criteria. The benefits at retirement are the same as for personal/stakeholder, but you could have a restriction on the tax free cash sum, dependant upon where the transfer came from and what you were paid.

    Note - there is no transfers out of 1/80th schemes i.e. teachers etc.

We could give you more explanations i.e. doctors/dentists, but the object was to give you some ideas and explanations of various schemes. If you would like any further information or advice please e-mail us, but before proceeding you must read our terms of business.