Everything Anyone Desire to Know Regarding Stakeholder Pensions
A secondary stakeholder pension plan is designed to increase your retirement earnings to afford a greater lifestyle once you stop working. Simply put they are an affordable means of increasing the funds available in your retirement. If you're employed you could currently have an occupational pension that fulfils this need. The benefits are made to assist people on lower to moderate incomes. Stakeholder pension fees are low (capped at 1%) and you can make investments from only ?20 per month, even though your company may make additional contributions. You can get one from your building society, bank or even an insurance provider. Some organizations for example trade unions also offer stakeholder pensions for their members. If you are currently employed, your employer must provide entry to a stakeholder pension unless the company is exempt from this requirement. You may switch your pension provider without any fee.
Some Exemptions Are:
-The company has fewer than 5 employees.
-The organization offers an occupational pension scheme for all of their employees to sign up for after their first 12 months of employment
-The company may also be exempt in the event that they offer to place a minimum of 3% of each employee's earnings within another form of non-state pension for their personnel.
If you are self-employed, you're entitled to a basic State Pension, but you cannot get any additional state pension. It may therefore be wise to think about a separate stakeholder pension to give you a higher income then a basic state pension upon retirement.
If you are an employee, you can decide to be contracted out of your additional State Pension. It will still mean you pay National Insurance Contributions at the full rate. The Inland Revenue will then pay a National Insurance Contribution rebate straight in to your stakeholder pension scheme. The size of the rebate is based on earnings as well as age so the older you are the greater the rebate will be.
Tax Relief on Stakeholder Pensions
Anybody paying contributions into a stakeholder pension is entitled to tax relief on their contributions. For someone on the basic rate of income tax, every ?100 placed in your pension will earn a rebate of ?22. For the highest level of income tax the same ?100 will earn a rebate of ?40.
What's The Maximum I Can Contribute?
You can contribute a maximum of ?3,600 a year towards your pension, including any contributions made by your employer and any tax relief you obtain from the Inland Revenue. It does not include the National Insurance rebate if you've chosen to be contracted out of additional state pension schemes (such as SERPS or State Second Pension). If you want to contribute more, please refer to leaflet 'IR3 - Personal Pension Schemes - a guide for members of tax approved schemes' which is available from the Inland Revenue.
About the Author
For much more pensions information you should visit InterPensions.co.uk