To assist us in transferring your pension we need to know what what type of pension scheme you have. Listed below are the various pension types that are commonly available. We need to know which one applies to you, but if you can’t be sure don’t worry, we can help you find out.
Personal Pension Plan:
A Personal Pension Plan (PPP) is designed to build up a fund that is used to produce an income at any time between ages 55 and 75. These are defined contribution type pension schemes, in which no level of pension is guaranteed, but rather a fixed rate of payments are made to a fund which is used to buy a pension on retirement. Contributions may be arranged on a regular basis or as one-off payments and can be made by an employer, if applicable. Whilst a retirement age is selected at outset, within the range 55 to 75, the fund can be used to provide an income at any time after age 55. Usually, up to 25% of the fund is available as tax-free cash when the benefits are taken. The growth in the plan is free of most taxes. Contributions are made net of basic rate tax (from 6 April 2001 this includes the self employed): higher rate taxpayers will receive further relief through their tax assessment.
Stakeholder Pensions (SHPs) became available on 6 April 2001 and are low-cost pensions that offer the same features as detailed under a Personal Pension Plan above. For a pension plan to be classified as an SHP it must meet standards laid down by the government. These standards include: -.
- Charges – The maximum annual charge that a provider can impose is 1.5% p.a. in the 1st ten years and 1% thereafter. There are no initial charges or exit penalties and any extra charges must be by agreement. The 1.5%figure does not include the cost of advice.
- Flexibility – The minimum amount that can be invested, either regularly or occasionally, into an SHP is £20 and there is no penalty for stopping and starting payments whenever you wish. An employee, whose employer offers an SHP, can arrange for contributions to be deducted direct from pay. You can take your stakeholder pension with you when you change jobs or you can switch to another stakeholder pension at any time, if you want to, without having to pay any charges for the transfer.
- A SHP provider must provide regular information to an investor, including an annual statement detailing the amount paid in, the value of the fund and a pension forecast.
Group Personal Pension Plan:
These are defined contribution type pension schemes, in which no level of pension is guaranteed, but rather a fixed rate of payments are made to a fund which is used to buy a pension on retirement. A personal pension plan is one established under contract with an insurance company. Contributions (both from an individual and if applicable, their employer) are paid to an individual’s fund which is held by insurance company who invests the money in accordance with the individual’s wishes. Management fees are often taken from these funds to cover the costs generated by the insurance company. A Group Personal Pension Plan is just that – a group of individuals’ personal pension plans. They can be branded as an employer’s pension scheme, but in essence an employer is only required to set up the terms of the pension scheme with the provider. They may (but are not required to) contribute towards the plan themselves. Every other aspect of the plan is governed by the contract signed between an individual and the insurance company. The terms of the group of contracts are typically negotiated by the employer.
Employer Occupational Pension:
Also known as a works pension, company pension or superannuation, occupational pensions are private pension schemes run by some employers for their employees. The scheme will be run by its trustees and often provides life insurance as well as pension benefits. Occupational pensions are governed by the Occupational Pensions Regulatory Authority (OPRA) and must comply with certain regulations. Occupational pensions are paid on top of any basic State Pension. These pension schemes work under a different set of rules to a personal pension. An occupational pension may either be contributory where members contribute to the fund or non-contributory, which is paid for by the employer.
Self Invested Personal Pension:
A Self-Invested Personal Pension (SIPP) is the name given to the type of UK-government-approved personal pension scheme, which allows individuals to make their own investment decisions from the full range of investments approved by HM Revenue & Customs (HMRC). SIPPs are a type of Personal Pension Plan. Another subset of this type of pension is the Stakeholder Pension Plan. SIPPs, in common with personal pension schemes, are tax “wrappers”, allowing tax rebates on contributions in exchange for limits on accessibility. The HMRC rules allow for a greater range of investments to be held than Personal Pension Plans, notably equities and property. Rules for contributions, benefit withdrawal etc are the same as for other personal pension schemes.
Executive Pension Plan:
An Executive Pension Plan (EPPs) is an old type of company pension scheme that has now largely been replaced by Self-invested personal pensions (Sipps) that offer company executives and directors similar benefits, coupled with greater investment freedom and lower costs.
Pension Income Drawdown Scheme:
Income Drawdown (also known as an unsecured pension) allows you to take income from your pension fund while the fund remains invested and continues to benefit from any fund growth. You generally need a substantial fund value to take income drawdown. The amount of fund varies according the rules of the pension provider, but is around £100,000.
The new income drawdown rules are as follows:
- There is no minimum amount of income that must be drawn, irrespective of age. This means that individuals may be able to leave their pension fund untouched for as long as they like, without the necessity to drawing any income.
- The maximum amount of income that may be drawn is reducing. The new maximum amount of income that may be drawn is 100% of the single life annuity that somebody of the same sex and age could purchase based on Government Actuary’s Department rates. An individual’s pension provider calculates the maximum income, using standard tables prepared by the Government Actuary’s Department (GAD).
- The maximum income will generally be reviewed every three years until age 75 and annually from age 75, based on the Government Actuary’s Department rates for an individual of the same age at the time of each review.
- Tax-free cash lump sums may now be paid after age 75 where an individual has elected to set aside or ‘designate’ funds for income drawdown at the same time, even if they decide to take no income.
Flexible Drawdown Scheme:
Flexible Drawdown will allow some individuals the opportunity to withdraw as little or as much income from their pension fund, as they choose and as and when they need it. You have to declare that you are already receiving a secure pension income of at least £20,000 a year and have finished saving into pensions.
Secured pension income means:
- A company pension being paid to you either from the UK or from Overseas; or
- An annuity being paid to you (from a personal pension or company pension) either from the UK or from Overseas; or
- A state pension being paid to you either from the UK or from Overseas.
Our understanding is that secured pension income is taken as the gross annual amount of pension (i.e. before any income tax is deducted). The requirement to have a secure pension income of £20,000 might change in future to increase the level of income required.
Section 32 Buy Out Scheme:
A Section 32 Buy Out policy allows people to transfer the funds and benefits of their company pension scheme into a private fund. The scheme allows you to take advantage of the same range of benefits as your original scheme, whilst having the same individual control as a personal pension plan (PPP).The benefits of a Section 32 buy out policy are that, unlike setting up a new personal pension plan, you will be able to receive the enhanced benefits that come with a company pension scheme, together with the flexibility of wide fund management opportunities. Company policies are typically restricted to a certain number of funds, whereas personal pension plans have more choice.