Types of Pension

Different Pension Types - Which pension should I have?

 

This section offers essential pension information having over 100 pages of pension knowledge that we think is relevant for different types of people and organisations.

Please read the following section that best suits your description to gain valuable knowledge to help you with your pension planning.

We are the pension specialists speak to us to kick start your savings and let us explain about your pension type.

1.  Individual Pensions

Whether its an explanation of tax relief you are looking for, children's pensions, pensions for women or even if you do not work, there is still something everyone can do to plan for retirement.

Whether you have retired, retiring soon or are just starting out, this section will also provide information that you need to make an informed decision.

Contact us for pension planning for individuals, plan for your retirement and make the most out of your pensions.

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2. Employees Pensions Advice

You may be in a scheme offered by your employer.  This might be a Company pension scheme (an occupational scheme) or a Grouped personal pension plan (an individual scheme) or a Company Stakeholder Pension.

'Topping up' your pension:

If you are in a company scheme and will not receive the maximum pension or you are not happy with the likely pension you will receive from your scheme, you may wish to top up your pension by making additional payments to Additional Voluntary Contribution Schemes within the company scheme structure or to top up your pension by establishing your own Stakeholder Pension or a  Personal Pension Scheme.

The circumstances in which you should consider this are:

1. You will not have contributed for enough years into your pension.
2. If your definition of salary for pension calculations is on basic salary and you get a lot of bonuses or overtime which may not be included in your pension calculation.
3. If you have other benefits provided by your employer that you are taxed on but are not pensionable such as a company car or private medical insurance.

Please visit the Additional Voluntary Contribution pages.

If you are not in a pension scheme you may be able to join one offered by your employer or set up your own Stakeholder Pension or a  Personal Pension Scheme.

The reality is that you need to plan for your own retirement in a realistic manner.  Many people leave it too late and do not start to plan until they are well into their late forties.

We all want to enjoy our retirement but it should not be left to chance.  The sooner you start to plan the better it may be.

Did you know that for every five years you delay starting a pension scheme, the pension you get at retirement may be reduced by up to half?  The younger you start the better.

Take a look at our calculators  to use as a guide to see how much you may wish to save.  Even if you believe it is too late - it is not. 

Do not forget that the Government give tax relief on your contributions.  For every £1 you invest, the Government will add basic rate tax relief (and possibly more if you are a higher rate tax payer).  There are even schemes that you can invest in, get the tax relief and retire at the same time.  These are called Immediate Vesting Plans.

Speak to an adviser today and make the most out of your employee's pension.

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3. Children's Pension

Children are able to join a pension scheme in their own right.  These rules started on 6 April 2001. 

You can take out a pension scheme for your child or grandchild.  

Children's Pensions - Stakeholder pensions are available to people of all ages including children.  Tax relief is given at the basic rate of tax.  This is a fantastic gift for children.  As most children do not work, they are allowed to contribute up to £3,600.00 per year (gross) until they start earning. 

Even grandparents can make contributions to a pension for their grandchildren.  Note: when making contributions such as this you should be aware that they will fall within the annual gifting allowances for Inheritance tax purposes. 

You could even make your child a millionaire at retirement:  Try our Child Millionaire Calculator.

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4. Retired? Retiring soon?

Remember, under Pension Simplification Laws, you do not need to stop working to 'retire' i.e.  take an income or a tax free cash lump sum from your pension scheme.  Provided your pension fund rules allow it, you are able to retire between the ages of 50 and 75 before 2010; and 55 and 75 after 2010.

So the word 'retirement' now means receiving some form of pension benefit, it does not mean you have stopped working.

When reaching retirement there are many decisions to be made about the future.  You hopefully have saved for many years in pensions.  If you have not, it is still never too late.

Some company pension schemes will buy an income for you automatically (this is normally the case for (Final Salary Schemes).  With others, you save and build up a lump sum fund, that you then have to decide what to do with, to provide for you in retirement.

There are many choices at your retirement date:

1. You can normally decide whether to take tax free cash from your pension at retirement or not.
2. You can buy an annuity  (a lump sum investment to provide a regular income) now known as Secured Income.
3. You can draw an income from the pension fund itself, leaving your fund invested in a tax efficient environment.  This used to be known as Pension Fund Withdrawal or Income Drawdown and is now known as Unsecured Income (before age 75) and Alternatively Secured Income (after age 75).
4. You can stagger your retirement by only taking part of your pension, gradually phasing in your retirement.
5. You can defer or postpone your retirement.  
6. You can even take your tax free cash and leave your remaining pension fund invested.  It is never too late to save or indeed delay - visit our more in depth section on Retirement Options.  

Book a free callback with us to discuss your retirement choices.

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5.  Pensions for non-workers

Just because you do not work, are not working currently or no longer work at all, you are still able to contribute to a pension scheme.

If you are not a UK Relevant Individual you can pay into a Pension Fund but you will not receive tax relief.

UK Relevant Individuals who are not working.  If you have no UK earnings in the current year then you are still able to pay into a pension and claim tax relief on some of it.

You must have been resident in the UK during the current year (with no earnings) or resident in the last five years (with UK earnings).  In these circumstances you can contribute a gross maximum of £3,600.00 per year (gross) and receive tax relief.  i.e.  You do not have to live here to pay into a pension and receive tax relief.

You can pay more than this but you will not receive any tax relief on the contributions that you make.

Old pension rules (before 6 April 2006):  If you had worked at all in the previous six years and had income that was subject to UK income tax then you may have been eligible to pay pension contributions at the time.   If you did not make the fully allowed contribution, you also used to be able to bring this unused relief forward, this was known as Carry Forward, which has now stopped for all types of pension schemes.

Try our regular savings pension contribution calculator to see what saving in pensions could do for you or contact us today.

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6. Company Directors Retirement and Pension Rules

By directors, we mean shareholding directors who own or have control, directly or indirectly (say via your family or trustees), 20% or more of a company's voting share capital.  This applies to anyone who is or has been a controlling director within 10 years of retirement or leaving employment with that company.

Directors are much the same as other business owners.  The only person who will look after you in retirement is you.  One big difference is that you control your comoany, it has an unlimited financial interest in your welfare and your company may be able to pay up to £60,000.00  (the annual allowance)into pension schemes without any tax or national insurance liability for you provided your overall remuneration package of pension and pay is commensurate with the role that you have.

• Your company is allowed to offset any contributions made below the Annual Allowance for you as a business expense. 
• Likewise, the employer contributions are not treated as a benefit in kind and therefore, you do not pay any extra tax e.g.  with a company car you pay additional tax as it is benefit. 
• You can get your company to pay all your pension contributions up to the maximum level allowed. 
• The maximum level allowed is set each year by the Annual Allowance. 
• If you or your employer/company pay above this yearly allowance there will be a tax charge.
• Your company is also able to make pension contributions for previous years where the maximum pension annual allowance was not used in full.

Use Your Pension Fund To Help Your Business:

Pension laws now allow pension schemes to help many businesses.  Provided you have used the right type of pension scheme and the right pensions company, your pension fund can:

• Lend your company money i.e.  it can technically act as bank for your business
• Buy business premises for you.  Your pension fund can even take out a mortgage to buy the premises for you.  Your company effectively pays rent to your pension and it becomes an extension of your business. 
• Can buy shares in your company - under new Pension Simplification laws some pension funds can own 100% of a company's shares.

Please visit the Entrepreneurs Centre for more details on this. 

Otherwise a director can become a member of a normal pension arrangement much the same as any other employee.

Directors pensions are a complex area that have many rules imposed and we believe that a business owner should always seek help from professionals when looking at pension arrangements.  

Book a call back from us now. 

For example, with effect from 6 April 2006, a director does not have to resign to access a pension fund and many of the old rules detailed below have been removed.

Contact us now for help on your pensions as many old rules have been removed and pensions are now much more flexible for entrepreneurs.

Have you thought about how you will get out of your business when you reach retirement?  Will you ever have to buy somebody out when they come to retire?  Succession planning is a much for people who run their own business.  Visit our Getting Out Page.

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OLD PENSION RULES (before 6 April 2006):

Some of these old rules listed below may still have application today.  Contact us to find out how you are affected.

Some of the old pension rules that used to be imposed on Directors:

• Controlling Directors of Investment Companies were generally not allowed to join an approved pension scheme.  However, there are special, very basic, schemes available that this category of director were allowed to join.
• The Spouse of a Controlling Director could become a member of an executive pension type arrangement unless you could satisfy the Inland Revenue that the spouse really worked for the business.
• Controlling Directors were not allowed to invest in Additional Voluntary Contribution Schemes AVC's - these have now been superseded by Pension Simplification Rules.
• A Controlling Director was allowed to save for retirement in old style 226 Retirement Annuity Pensions, Personal Pensions or Occupational Pension Schemes.  This is unchanged. 

There are schemes available to directors which follow occupational scheme rules but are appealing to directors.  They give control, keep it separate from other employees pension arrangements and use them to lend money to the company or buy commercial property etc for a commercial return, for the mutual benefit of the business and the Director.  These are Self Invested Personal Pensions, Executive Pensions and Small Self Administered Schemes. See Directors & Executive Pensions.

Maximum Salary Calculation for Directors Pension Benefits: This used to be the average salary of 3 consecutive years salary ending no earlier than 10 years before the normal retirement date.  These limits are all replaced by Lifetime Allowances.

Ill Health: A controlling Director used to have to notify the Pension Schemes Office if he or she plans to retire early through ill health.

Retirement Dates in General: A Controlling Director who joined a pension scheme between the following dates used to be able only to take retirement as follows (these rules are now removed by Lifetime Allowance checks):

• If you joined the scheme before 14/3/89 (for a new scheme) or 1/6/89 if joined an existing scheme 60 -70 years old (can take early retirement 10 years before i.e.  earliest is 50).  You were allowed to retire after age 70 by seeking consent from the HM Revenue and Customs.
• If you joined after the above 1989 dates you were able to retire between the ages of 60 and 75 and can take early retirement up to 10 years before i.e.  50.

Retirement ages changed in 2010.  Provided your pension fund rules allow it, you are now able to retire between the ages of 55 and 75.

There were also other restrictions that affected Controlling Directors and their pension arrangements.  You should seek professional help from us if you are a company director: Contact us now.

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7.  The income of women is more important now to the household than it has ever been.

Many women live alone.  Many women have careers.  Many women stay at home for family reasons and do not build up pensions.  All are important factors when considering a retirement programme.

Financial independence for women is important and therefore, independence in retirement is a must.  There are many things that women need to think about for retirement.  

Did you know that the Government has changed the State Pension Age for women born after a certain date from 60 to 65, 66, 67 and even higher?

Whether you work or do not work you are able to contribute to a pension scheme.  If you do not work you can contribute to new style Stakeholder Pensions.

Retirement Age Changes for Women - There are millions of women who are not aware yet but they are affected by changes in the State Pensions Age.

• Group A - If you are a woman born before 6 April 1950 your State Pension Age remains at 60.
• Group B - If you were born after 6 March 1955 your State Pension Age is now 65.
• Group C - If you were born between these dates your State Pension Age is on a sliding scale between 60 and 65.

The result is you may have to work longer before you can retire or save now on your own behalf to ensure that you can retire when you planned to.

Reduced State Benefits for Women?

Your state pension rights may also be affected when or if you are not working and not liable to pay National Insurance contributions.  Many women give up work to take career breaks to bring up a family.  This can leave a shortfall on your State Pension Benefits. 

For say a woman in Group A, she would have to have worked and paid full National Insurance Contributions for over 35 years to get a full Basic State Pension in her own right.  She may only receive a proportion in her own right if she has not paid adequate National Insurance Contributions or received special Home Responsibilities Protection Credits for missed contributions whilst say looking after children. 

Alternatively, she may receive nothing and a husband (if married) may receive an increased Married Persons pension.

If you are a woman who is not currently working we suggest you also read the not working section of this page.

What is our view on financial planning for Women?  Women need to take responsibility themselves and plan for retirement - you may not be able to afford to retire when you planned to unless you save.

Other things to remember:

Divorce or dissolved civil partnerships - this can effect what you are entitled to, you may have lost the benefit of your ex-spouse's pension security both from a State point of view and private pension schemes.

More Expensive for Women - Women generally should pay more into pensions than men.  This is because they live longer and therefore need a greater fund when they reach retirement to buy a pension.  Start planning now.

Co-habiting - If you are not married or in a civil partnership but live with someone, you may not be entitled to any of your partner's pension benefits on death.  You need to investigate this and ensure that you are protected.  You should also be aware that other assets on death may be affected.  To avoid confusion and heartache you should consider making a Will.

Women's pension are just as important as any other, contact us and discuss about getting yourself a pension.

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