Pensions & Retirement

• Saving for retirement
  • Overview
  • What is a pension?
  • Types of pension
  • Pensions vs ISAs & Funds
  • How Bestinvest can help
  • Transfer Considerations
• SIPP
• Stakeholder pension
• Protected Rights

Types of pension

There are a number of different types of pensions that may be available to you.

These can be broadly split into Personal pensions, State pensions and Occupational pensions.

Personal pensions

A personal pension is an individual arrangement where your contributions are invested and your retirement income is based on the performance of the fund and annuity rates. There are many different pension providers to choose from, each with their own charging structure and range of funds. Both Stakeholders and SIPPs are types of personal pension.

Stakeholder pensions

Stakeholder pensions are low cost personal pensions that have to meet Government standards to make sure they offer value for money, flexibility and security. Stakeholder plans have charges capped at 1.5% for the first 10 years and 1% thereafter. Contributions can be flexible and have low minimums. They are normally restricted to a few funds managed by the pension provider.

SIPP

A self-invested personal pension (SIPP) is a type of personal pension that offers a wider range of investments than a standard personal pension or Stakeholders. This greater investment choice provides more flexibility and can help to reduce risk and enhance potential returns.

SIPPs allow you to control how your pension fund is invested. At Bestinvest we can also provide independent personalised investment advice at no extra charge. We also have two Investment Management services, which suit clients who prefer to leave the day to day management of their investments to us.

The tables below compare Stakeholders and SIPPs

General

	Stakeholder	SIPP
Charges	Capped at 1.5% p.a. No entry or exit charges	Dependent on the product provider
Contributions	Minimum contribution £20 per month	Dependent on the product provider
Transfers	Penalty free	Dependent on the product provider
Fund choice	Limited fund choice, often limited to providers own funds Offer a default investment fund – a fund your money will be invested in if you don't want to choose	Large fund choice, including external funds Offer the flexibility of choosing from a wide range of funds

At Bestinvest

Charges	Scottish Widows	FundsNetwork
		Over £50k	Under £50k
Initial admin fee	Nil	Nil	£104
Annual admin fee	Nil	Nil	£260
Switching fee	Nil	Nil	Nil
Annual management charge	1%	Underlying funds average 1.4%
Transfer	Penalty free	Penalty free
Fund choice	Access to 35 funds, including three externally managed funds	Access to over 1,400 different funds

 

Common misconceptions about SIPPs

• They're too expensive

  Although it’s true that SIPPs may be more expensive than other pension plans, the FundsNetwork SIPP has no initial or annual administration fees. Indeed investing in trackers within the SIPP could be cheaper than investing within a stakeholder. For example, the Fidelity Moneybuilder Index fund has a Total Expense Ratio (TER) of 0.27% and can be held within the FundsNetwork SIPP with no additional charge, whereas the equivalent fund held within the Scottish Widows Stakeholder has a TER of 1%.

• A wider range of investments are potentially too high risk and not suited to the majority of private investors.

  A broader range of investments can give an investor the opportunity to diversify holdings, which can help to reduce risk. We have designed a number of asset models to suit your objectives. Bestinvest models can help you build a portfolio yourself or if you prefer, we can provide advice at no additional cost.

• SIPPs are complicated

  Although it’s true pensions can be confusing, a SIPP is simply a pension wrapper that can hold investments until you retire. Investing within a SIPP doesn’t have to be complicated. We can provide advice regarding which funds to invest into and we have two types of management service, which enable us to take the responsibility of running the pension investments off your hands.

• I need new money to invest in a SIPP

  It is also possible to transfer other pension plans into a SIPP. Please refer to our ‘Pension Transfer Considerations’.

State pensions

There are two types of State pension.

The Basic State Pension

This is paid at a set rate by the State, provided you have made a sufficient National Insurance Contribution throughout your working life. Most people will qualify, although there are conditions surrounding this.

The State Second Pension

This applies to employees who have had earnings above a certain amount and have paid the appropriate National Insurance Contributions on those earnings. They will be entitled to an additional State pension, known as the State Second Pension and prior to April 2002, was known as the State Earnings Related Pension Scheme (SERPS).

Occupational pensions

There are two broad types of Occupational pension.

Final Salary or Defined Benefit schemes

Final salary occupational pensions offer a defined pension amount, which is based on salary and time served with an employer.

The amount of income you receive at retirement depends on the accrual rate; typically of 1/80th or 1/60th of pensionable salary for each year of pensionable service.

Final Salary schemes are considered the ‘Rolls Royce’ of pensions and it is not generally advisable to transfer away from them.

Money Purchase or Defined Contribution schemes

With a Money Purchase occupational pension, the employer pension contributions are invested (often along with personal contributions).The final pension is based on the value of the fund at retirement, which will be dependent on the performance of the underlying investments and annuity rates. There is no guarantee of the amount of pension income, which is also the case for personal pensions.

Many employers contribute to pension schemes – so it is usually worth joining – if you don’t it’s like refusing a pay increase.