www.InvestmentGuide.co.uk

Saving Towards a Pension
Other Types of Pensions
Unit Trusts
Investment Trusts

PENSION

Stakeholder Pension

Stakeholder pensions are a type of personal pension which are subject to maximum charges. However you may find that in practice the charges are similar to other types of personla pensions.

Like a personal pension, a stakeholder pension is a means of saving towards a pension starting between ages 50 and 75. You can take 25% of the accumulated pension fund as a lump sum. Stakeholder Pensions can be linked to a Unit Trust or OEIC including an Index Tracker Fund, or to an Investment Trust have bonuses added, like Life Insurance With-Profits Endowment Policy or can be linked to a unit fund, like Life Insurance Mixed Bond or like Life Insurance Property Bond or or give a fixed return, called non-profit. Unlike other forms of pensions, deductions for charges on these pensions are subject to a maximum laid down by the Government.

Who can invest Anyone not in a job pension scheme unless they are earning less than £30,000 a year in which case they may be able to contribute to both a job pension and a stakeholder pension, in some cases only for a limited period. Some job pension schemes will become Stakeholder Pensions or partly Stakeholder Pensions. Non-residents are not eligible.

How worthwhile Good value if you want a pension and lump sum starting at age 50 to 75. You can take part of the pension at different dates. Consider schemes as follows: 5 yrs or less to retirement, non-profit or cash fund; 6-10 yrs, with-profits or cash fund; 11+ yrs plus mixed, unit trust or investment trust linked fund.

Minimum £20 per contribution.

Maximum From 6 April 2006 you can pay up to the full amount of your salary to all your pension schemes. For the current contribution limits click here.

Suitable Lump sums. Regular savings.

Money back As a lump sum and pension starting between ages 50 and 75 until you die (or with a guaranteed period of, say, 5-10 years). When you start the pension you have to buy a Pension Annuity from a life insurance company. You can start part of the pension at one date and draw some more at a later date. You are also able to cash part of the fund early without buying an annuity, called draw down, but this will be taxed as income. Widows pensions are available. If you die before you start the pension, the value of the fund or your contributions with interest, depending on the company, is returned to you.

Interest Variable except non-profit schemes where return fixed at the outset. Income is accumulated. When money is held on deposit, the interest paid must be no less than 2% under the Bank of England base rate.

Interest paid When policy matures mostly as a pension. See also Money back above.

Tax No tax on the lump sum nor on the interest or capital gain accumulated. Contributions get full tax relief, see table of contribution limits. Basic rate taxpayers pay 20% tax on pensions in payment; higher rate taxpayers pay 40%.

Fees to pay Charges are subject to a maximum of 1% a year. No other charges are allowed. This is significantly better value than many existing types of pensions, especially those sold direct to the public. There cannot be a "spread" between prices used to buy and sell units in your pension fund.

Passbook Pension contract. Statements.

Children Not usually eligible.

Risk Depends on the investment to which the policy is linked. UK life companies have The Policyholders Protection Act. Unit Trusts have, The Investors Compensation Scheme.

How to invest For more advice on pension planning see Saving Towards a Pension. Ask an independent financial adviser, preferably a fee based one, or go direct to at least three of the companies listed below for quotes. See magazine surveys to find companies with low charges.

Where from A specialist independent financial adviser or direct to companies which offer low charges if low or no commission paid.

Other Types of Pensions
Saving Towards a Pension

Last updated 23 June 2008.