Selecting the correct Pension Products can be a challenging decision with many options that could substantially affect the future growth of the plan, the level of lump sum at retirement, the income you will receive and the level of taxation you will have to pay.
We analyse all your options and consider all the products you have and that are available to you before helping you make the right decision.
Some of the most common pension products are briefly described below.
Personal Pension Plan (PPP)
After State Pensions and Employer provided pensions, Personal Pensions are the most common form of retirement plan. These plans allow you to pay in regular or single contributions, on which you will receive tax relief at your highest tax rate.
Whilst you pay into this type of pension the fund grow tax free until you are ready to take the benefits and these are usually taken in the form of a tax free lump sum of up to 25% of the plans value, with the remaining funds buying you a pension for the rest of your life.
There are many providers offering personal pensions with many options and considerable fund choice , but the main consideration on the suitability of any provider or fund comes down to cost, risk, past performance and the asset mix within the fund.
A Stakeholder Pension is in essence a Personal Pension with the same benefits and tax advantages; however these plans have a limit on charges that can be levied by the providers which in turn limits the number of investment options and funds considerably.
As a result Stakeholder Pension plans charges are usually cheaper than personal pensions, however as the investment options are limited, this may not be the correct option for some.
Retirement Annuity Contract (RAC)
Retirement Annuity Contracts are an older form of Personal pension plan designed for the self employed. Many people still have these plans, however new RAC plans have not been available since 1988.
The retirement options available from a RAC will depend upon the individual plan and in general they can be preferable to other pension plans, however as these plans are closed to new business the current investment options and charging structure may be considerably less favourable than a new PPP.
Section 32 Buy-Out Plan (s32)
Section 32 plans were introduced to allow people who were in an occupational pension scheme to transfer this into a personal plan if the individual saw this as a better option.Some of the guarantees, such as the Guaranteed Minimum Pension level could be transferred into the plan whist maintaining the guarantee.
Self Invested Personal Pension (SIPP)
A SIPP is a Self Invested Personal Pension. SIPPs as the name suggests is a type of Personal Pension, which has far greater investment options and can invest in far more specialised areas than a normal PPP can.
The main advantages of SIPPs are that they have the option to borrow to fund additional investment and to invest in simple collective investments, as opposed to more expensive pension funds. Please note however that SIPPs themselves are typically more expensive than most personal pensions, however the costs have significantly decreased over recent years.
Small Self Administered Scheme (SSAS)
A SSAS is an occupational scheme typically aimed at Directors and Senior Employees. All SSAS schemes must have 12 or fewer members and all members must be trustees of the scheme, which carries with it additional obligations.
SSAS schemes offer additional options in terms of available investments, as well as being able to loan money to, or borrow money from, the company the pension is attached to. The main investment opportunity that SSAS schemes can utilise that is not available to other schemes is that it can invest in direct property, provided that there is enough security provided by the property value.
SIPP or SSAS
SIPP and SSAS schemes are often compared to one another as they offer many of the same advantages and disadvantages. The main considerations are whether the plan is seeking to loan or borrow money, who the money is being lent to, and what the plan is looking to invest in. To discuss your options, please contact us for independent advice on your options.
Group Personal Pension (GPP)
A Group Personal Pension is set up by an employer for its employees. A GPP is a group of personal pensions compiled together under one set of rules and charging structure. There can be individual investment options for each member as well as different contribution levels set by the employer and/or the employee.
Executive Personal Pensions (EPP)
Like SIPPs, Executive Personal Pensions are typically setup for Directors or Senior Employees, in order that higher benefits could be paid than by a similar Group Personal Pension. These were very popular in the 1980’s – 2000’s, however following the Pension Simplification changes in April 2006 the advantages of EPPs over other options were reduced for most people, and as it had reduced options and in most cases substantially higher charges these plans have fallen out of favour with most employers.
An important part of effective retirement planning is to regularly review your plan to ensure that it is still on track to match your expectations so if you have existing plans or are looking to start your retirement fund, please contact us to discuss whether your existing plan is still on track or indeed to look at the options for your new plan.