Stakeholder Pension

Pythagorous

Hi all,

My employer is due to soon have 5 employees and it is my understanding that they will then be obligated to provide a stakeholder pension.

Can anyone explain the major differences between filtering my salary into a stakeholder pension and setting up my own personal pension? Is it lower charges?

Also if you go down the personal pension route how do you ensure that you still receive the tax exempt contributions as I'd imagine the payments to a personal pension would be going into it from my net, post tax salary.

Thanks

EdInvestor

Pythagorous wrote: »

Hi all,

My employer is due to soon have 5 employees and it is my understanding that they will then be obligated to provide a stakeholder pension.

Not really.All they have to do is give you some literature about one, and agree to deduct the contributions from your slary and foward them to the pension company.they don't have to contribute any acryal dosh.

Can anyone explain the major differences between filtering my salary into a stakeholder pension and setting up my own personal pension? Is it lower charges?

No difference in effect if the enmployer is not contributing.You would be better to seek your own pension, or save in a stocks and shares ISA, especially if you are a basic rate taxpayer.

Also if you go down the personal pension route how do you ensure that you still receive the tax exempt contributions as I'd imagine the payments to a personal pension would be going into it from my net, post tax salary.

The pension company will claim back the tax relief.Don't forget that the Government will then claw it back later by taxing your pension after you retire.

Pythagorous

Thanks for the reply Ed.

I basically don't want to be paying tax at 40% at all, so my plan was to put anything I earn over £40,670 (5225+2150+33300) into a personal pension.

So Is my understanding correct, that I can simply wait until I have reached £40K ove the year (from April 08 & obviously brackets will also change) and then put the remaining amount into a personal pension and the provider will then arrange for the 40% tax that I have paid to be refunded and added unto my pension.

Does this seem like a plan?

dunstonh

My employer is due to soon have 5 employees and it is my understanding that they will then be obligated to provide a stakeholder pension.

Not quite. The employer is obliged to make the facility for employees to pay into a pension via the payslip. This can be using individual schemes or group schemes.

It doenst have to be a stakeholder.

Can anyone explain the major differences between filtering my salary into a stakeholder pension and setting up my own personal pension? Is it lower charges?

stakeholder pensions have a defined charging structure which can be more expensive or cheaper than a personal pension. (younger people are often better off with a personal pension, older people are often better off with a stakeholder). Stakeholder pensions usually have limited investment options compared to a personal pension which will usually offer the stakeholder funds as well as a range of external funds.

Pensions can be better than ISAs in some areas and worse in others. I'm afraid Eds comments on this are not detailed enough to be accurate and could be totally wrong for your circumstances.

Stakeholder pensions are expected to be made obsolete for new business from 2012 when the NPSS is introduced.

EdInvestor

Pythagorous wrote: »

So Is my understanding correct, that I can simply wait until I have reached £40K ove the year (from April 08 & obviously brackets will also change) and then put the remaining amount into a personal pension and the provider will then arrange for the 40% tax that I have paid to be refunded and added unto my pension.

it's better than that.The provider will claim the 22% basic rate tax relief (going down to 20%) for you, but you have to claim the remaining 18%(going up to 20%) via your tax return in cash.

So you can put that bit in your ISA.

dunstonh

If you are in receipt of working/childrens tax credits, you will need to notify them as well as pension contributions can increase the amount of credit you are due. ISA contributions do not.

Pythagorous

Great info guys thanks.

Next Q - should i use an IFA?

dunstonh

You should use an IFA if you cannot do it yourself (i.e. pick pension type, provider and most importantly the investment funds). If you can do that yourself, then there are discount IFAs with websites where you go execution only (meaning you get no advice) and they will rebate some of the commission in the form of lower charges (it isnt possible to rebate commission directly on pensions).

Pythagorous

Thanks for the info Dunstonh. As I'm confident I can sort it all out myself can you point me in the right direction for an execution only IFA site? Thanks

Ian_W

As I'm confident I can sort it all out myself can you point me in the right direction for an execution only IFA site?

A good starting point might be Martin's article on the main site - HERE. Has links to brokers and covers, in brief, Stakeholder, PPPs and SIPPs.