Should I Get A Stakeholder Pension?
If you’re looking for another way to save for your retirement, a Stakeholder Pension may be an option. But what does this type of pension plan involve?
What is a Stakeholder Pension?
In simple terms, a Stakeholder Pension is a Personal Pension scheme that is subject to certain conditions laid down by the Government. The conditions attached to Stakeholder Pensions are as follows: first, the pension company is restricted on the maximum they can charge for the product. Secondly, the company has a minimum level of contribution that they must accept, and lastly, there are conditions relating to the abolition of a fixed frequency for your contributions.
You will always be able to save a minimum of at least £3,600 a year (£300 a month).
If you want to contribute more than £3,600 into your Stakeholder Pension per year, it’s important to weigh up how much you can invest whilst still remaining tax efficient. The sum of £3,600 per year is tax-free regardless, but if you want to add more then your income will come into consideration.
Stakeholder Pensions have no maximum limit that can be paid in on an annual basis, but there is a limit on how much benefits from tax relief. This limit equates to 100% of your earnings, and is also capped at an Annual Allowance of £50,000 per year. Exceeding this limit is likely to incur considerable tax charges, and this may result in the pension being ineffectual for saving purposes.
Getting down to tax
As with all pension schemes, the biggest benefit of taking one out is the tax relief on any investments. Stakeholder Pensions allow an immediate Income Tax Relief of 20%. This effectively means that if you invested £80 into the scheme per month, the pension company would claim £20 in tax relief from the government that would then be added to your contribution, rounding it up to £100 per month.
Those who currently pay Higher Rate Tax are entitled by HM Revenue and Customs to claim up to 40% tax relief. However, as the base rate of only 20% comes as standard under this sort of scheme, eligible candidates will need to fill out a form in order to claim the further relief.
Choosing the right Stakeholder Pension
Much like other pension schemes, pension companies will each offer different arrangements, and therefore you need to identify which one will work best for you. Although all of these schemes will be subject to the same government conditions, they can vary in where your funds are invested.
As with every decision regarding financial planning, it’s a good idea to seek the services of an Independent Financial Adviser. The team at money4dentists have years of experience helping dental professionals understand the available pension schemes and advising them on any opportunities worth taking.
By Richard Lishman