stakeholder pensions

gurner

Can anyone start a stakeholder policy or are there earnings limits? The reason for asking is that I want to use the 3600 Limit but currently fall in the higher tax bracket. Sorry if this is a stupid question but I am finding the pension world for self employed very confusing. Didn't help that the pension adviser I spoke to for an hour the other day contradicted what I had read on the dfwp website. Cheers

dunstonh

Can anyone start a stakeholder policy or are there earnings limits?

A non/low earner can pay upto £3600 a year into a pension (of any type) and get tax relief.

The reason for asking is that I want to use the 3600 Limit but currently fall in the higher tax bracket.

You dont have a £3600 limit but a 100% of earnings limit upto £215,000 (to get tax relief).

Sorry if this is a stupid question but I am finding the pension world for self employed very confusing.

Self employed do get it worse as you only get the basic state pension and not the second state pension. However, apart from that, the principle of what you need to do is now much the same.

Didn't help that the pension adviser I spoke to for an hour the other day contradicted what I had read on the dfwp website. Cheers

Or the website didnt have the scenario that matched your situation and the adviser was correct? Was the adviser an IFA? Was it a tied agent? Was it a bank salesperson? Were they an investment specialist? Were they just a pensions helpline who couldnt give advice?

A few issues you need to consider here

1 - why stakeholder? You say you are higher rate taxpayer and self employed. Those two things suggest to me that you have your head screwed on. So why are you looking at the basic/budget option on something you dont understand? The stakeholder pension is limited in what it can do. It is for the novice to go DIY but over the long term, it will underperform a properly invested personal pension. It could easily be more expensive too.

2 - The £3600 doesnt apply to you. Forget that. In your case it is 100% of your declared income in the tax year of contributuion. If your accounts say you earned £170,000 that year then you can pay £170,000 into a pension.

3 - Why pension? Do you understand that you will be buying an annuity when you commence benefits. You cant change your mind once in a pension and take it out. Tax relief may be a good reason but if you need that captial later, you cant get it all out and you may not even be able to get some of it out.

A pension is just a tax wrapper for an investment. Is it the right tax wrapper for you? Are the investments available within your chosen product right for you? Does the maturity process match your requirements? Could ISA be better, could a SIPP be better, could a personal pension be better?

LastMinute_2

I'm in a very similar position at the moment as the OP:

I run my own limited company and want to invest as tax efficiently as possible yet still have some flexibility.

So far, I've been recommended by one IFA to invest in a stakeholder - but as mentioned in this thread, I've also read that personal pension charges are falling and may provide a better return over the long term.

As the company can invest money into my pension fund, these contributions are boosted by the tax relief available. I'd also like to pay regularly into a unit trust (or two) to spread risk and access to my investments.

I feel a bit stuck between a rock and a hard place as I don't know what to invest in!!

Incidentally, I read in Martins article on pensions that Hargreaves Lansdown (http://www.hargreaveslansdown.co.uk) provide pension 'advice' - but I can't find this on the site - can anyone help me find it please ??!!!

dunstonh

HL provide advice on pensions like any other IFA but you wont get their discount pricing that you see on their website.

FSA Rule RU64 means that any adviser has to recommend stakeholder as an option and then have a valid reason for overuling that. If the IFA doesnt feel that you are sufficiently investment savvy and you are not likely to retain their services, then a stakeholder would be a sensible choice. Personal pension charges can be lower but the primary reason for using them is to access a greater range of funds and increase your investment potential. Many stakeholder pensions just dont have the fund ranges available for efficient investment. Yes it may be cheap but it may not make as much over the long term. That isnt a blanket rule as there are providers that do have a good enough range for a novice. There is the other point that most personal pensions offer the stakeholder fund range at stakeholder charges as well as offering a load more funds which may cost more. So, why limit yourself to a handful of funds when you can access a greater range but still pick the better of the cheap funds.

jamesd

For the unit trust part, if you want that outside the pension, look to an equity ISA to reduce the tax there. Note that pensions can also use unit trust investment types.

Stakeholder pensions are low management fee, low fund selection, low minimum investment (10 pounds instead of 100 pounds a month, say) choice. Intended to enable those with lower incomes to invest easily, though not limited just to those on lower incomes.

How interested are you in learning a good deal about fund choices? How willing are you to pay someone 25 a month or let them keep the annual commission to look after that and regularly adjust it for you?

People like dunstonh are in the business of doing the latter for people who don't know enough or have better uses for their time. Since you have a business to run and can make money with your time that way it may well be worth using such a service.

gurner

This information has all been very helpful.
The problem I am finding is that by being self employed and drawing a lower salary and paying via dividends is that the amount that I can pay into the pension is somewhat limited. I believe I read somewhere that you can use the highest salary figure in the past 5 years as the reference salary for payments? Is this the case?
With all the press coverage about the importance of pension saving they certainly don't make it easy. I'm sure once I get everything set up and running it'll all be a lot more straight forward. Some short term pain for some hopefully longer term gain?!

This article makes interesting reading for self employed:
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/10/16/cmpen18.xml

EdInvestor

Discount brokers don't provide "advice" - they operate on an "execution only basis.Having said that, HL's website has a lot of useful information on it about good quality funds.

They also have a separate IFA service which does give advice.

Have you considered a SIPP? The HL SIPP one is the cheapest for regular investment into funds and it does offer the full choice of all the best ones.

You may get a company PP (not a stakeholder) at a similar price with some quality choices, but not usually with the full selection.

An advantage with a SIPP is that when it comes to getting an income out, you can go straight into drawdown, with the same investments, no fuss or delays, costs or risks with transfers and having to cash in and rebuy investments.

Insurance co admin is so bad that months can go buy before you get your money,which can have a serious effect on your wealth in the meantime.

dunstonh

I believe I read somewhere that you can use the highest salary figure in the past 5 years as the reference salary for payments? Is this the case?

This is no longer the case. You can pay in 100% of your earned income. So whilst you cannot use dividends still, you can contribute more in than you used to.

With all the press coverage about the importance of pension saving they certainly don't make it easy.

It is very easy. You pick a provider and pick your investments. Job done. It doesnt mean it will be the best thing though. You could pick a Virgin Stakeholder pension which is one of the worst current pensions there is. You could invest the money in inappropriate funds. If you dont know what to do then there are IFAs out there to help you.

Have you considered a SIPP? The HL SIPP one is the cheapest for regular investment into funds and it does offer the full choice of all the best ones.

SIPPs are for experienced investors or people using active IFAs (or using one of the features such as commercial property purchase for self employed). They are not for the inexperienced investor who cannot dedicate regular time to it. Someone not using a SIPP correctly can easily pay a load more in charges and find they end up with one big cash fund which hasnt been invested.

An advantage with a SIPP is that when it comes to getting an income out, you can go straight into drawdown, with the same investments, no fuss or delays, costs or risks with transfers and having to cash in and rebuy investments

Same option is available on some personal pensions and isnt an issue with modern plans if it doesnt offer it as there is no transfer penalty to move it to one that does when you do finally get to retirement.

Insurance co admin is so bad that months can go buy before you get your money,which can have a serious effect on your wealth in the meantime.

Whilst some insurance companies have poor service, it isnt fair to label them all that way. Indeed, we get more complaints about HL's poor service on these forums than any of the other insurance companies.