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Pension plan types - a handy guide for you

A stakeholder pension is a form of low cost personal pension aimed at encouraging those people who do not currently have pension provision to save for their retirement. Stakeholder pension schemes are intended to be flexible and easy to understand.

 

Stakeholder pension plans are privately managed and funded but must operate within a standard framework laid down by the Government. They are individual pension arrangements, meaning that they are personal and portable - you can take them with you if you change jobs.

 

We can research the whole market on your behalf to find a suitable Stakeholder Pension plan, ensuring you make the best of your assets.

Stakeholder pension

Unlike some company schemes, all personal pension plans work on a ‘money purchase’ basis. This means that the money you save each month or each year into your personal pension plan is invested (typically in investment funds) and is then used at retirement to provide you with pension benefits. So in theory the more you save the better your pension should be at retirement.  

 

On reaching retirement, you use the money that has built up in your personal pension to purchase pension benefits, these benefits can be taken in the form of either income or income with a tax free lump sum.

 

So a personal pension plan is really just a long term savings plan (albeit a very tax efficient one) that is designed to produce a fund at retirement.

Personal pension plans (PPPs)

For help and advice on the right pension plan for you, give Lincoln Financial Services a call on:

0800 587 4523

A good proportion of the UK’s working population are members of a company pension scheme. Occupational pension schemes are those run by your current or former employer/s. Your employer may make a contribution to your occupational pension scheme in addition to deducting a percentage of your salary and paying it into the scheme. Eligibility to join a company scheme varies from company to company.

 

There are two main types of company scheme, final salary & money purchase. They differ greatly in what they offer and how they work. At present, final salary schemes are the most common in terms of number of members, but many large firms are now switching over to the money purchase type because they are cheaper for the employer to fund.  

Company pension schemes

Annuities are used to provide a pension income. The pension lump sum is exchanged for a pension income. Once the annuity has been bought, the income is fixed, the contract cannot be reversed - the pension lump sum becomes the permanent property of the annuity provider.

 

The level of income that you will receive from an annuity depends upon several main factors:

• The value of your pension fund at retirement

• Age of ‘annuitant’

• Health

• Sex

• The prevailing annuity rates at the point of annuity purchase

 

Annuities, in the main, are supplied by Life Assurance Companies. The underlying ‘annuity fund’ is usually invested in fixed interest investments, such as long term government gilts in order to maintain the guaranteed income and ensure regular income payments are made to annuitants.

Annuities

Phased retirement, (also known as ‘staggered vesting’), allows the purchase of a pension to be phased, thereby allowing flexibility when considering retirement. Phased retirement plans achieve this flexibility by periodically encashing segments of the plan to produce pension income. These plans are usually split into many individual segments, perhaps a 1000 or more, to assist the process.

 

Each year the level of required pension income is determined, this subsequently determines the number of segments which must be encashed to meet the income need. The annual pension income is composed of a combination of tax free cash and annuity from the individual segments. The remainder of the fund remains invested and may benefit from any market growth in its underlying investments.

 

Phased retirement plans are relatively complex and are not suitable for everyone, but they can for some individuals offer a flexible approach to retirement.

Phased retirement

Pension fund withdrawal is a retirement option worth considering, particularly for individuals who have built up significant pension capital.

 

Pension fund withdrawal enhances the flexibility in that annuity purchase can be deferred until a time when it may be more suitable. Most of the major insurance companies now offer ‘income drawdown’ plans. These plans allow up to 25% of the retirement fund to be taken as tax free cash.

 

Pension fund withdrawal plans are relatively complex and are not suitable for everyone, but they can for some individuals offer a flexible approach to retirement.

Pension fund withdrawal