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Pensions

With offices in West Bridgford, Nottingham, Nottinghamshire David Burnell Financial Services Ltd can help you with pension advice on the four main types of retirement income:

There are four main types of retirement income:
State Pensions : Occupational Schemes : Personal Pensions : Stakeholder Pensions

State Pensions
For most people there is a basic state pension. However, this is probably not sufficient to provide anyone with a comfortable retirement at £97.65 per week for a single person and £156.15 per week for a couple (2010/11). Individual circumstances can affect the actual amounts.

Additional State Pension Arrangements:

i) State Earnings Related Pension Scheme (SERPS) – Based on a combination of your national insurance contributions and how much you have earned.
ii) State Second Pension (S2P) – This has now replaced the SERPS as of the 6th April 2002 with existing SERPS entitlement being protected. S2P provides a more generous second tier state pension for people on low or moderate earnings, certain careers and for people with long-term illness or disability. As with SERPS, the self-employed will not be entitled to S2P benefits at retirement.

Occupational Pension Schemes (Co Pension Schemes)
These are pension arrangements that are set up by employers to provide income in retirement for their employees. Although the employer is responsible for sponsoring the scheme, it is actually run by a board of trustees. Some schemes require you to contribute, others do not. Under current rules you do not have to join your employer's pension scheme but it is usually advisable. The pension is taxable when it is paid, but may be linked to inflation and thus increase annually once you start receiving it. Many schemes also pay out a lump sum, which is currently tax-free, when you retire.

There are two types of occupational schemes: Final Salary and Money Purchase

i) Salary Related Scheme:
This is where your retirement benefits depend upon the number of years you have worked for the company (pensionable service) and your final salary shortly before leaving that employer (pensionable salary). It provides a guaranteed pension based on these factors and is sometimes called a 'Defined Benefit scheme' (DBS). Additional Voluntary Contributions can provide ‘top up’ pension entitlement. These sometimes purchase “added years”, i.e. you buy extra years of service.
ii) Money Purchase Scheme:
This is where your contributions are invested for you to purchase a specific share of the pension fund and is sometimes referred to as ‘defined contribution scheme’. Your retirement benefits depend on the amount you and your employer have paid in, how well the investment funds perform and annuity rates when you retire.

Personal Pensions
A personal pension policy is designed to offer a lump sum and income in retirement. It is available to any UK resident who is under 75 years of age and can be bought from Insurance Companies, high street Banks, Investment Organisations and some retailers. The personal pension option is usually taken if you are self-employed or your employer does not run a company scheme. You can start receiving benefits from age 55.

Personal pension plans are money purchase arrangements. A member contributes to the plan, the money is invested and so the plan value is built up. The amount of pension payable when a member retires depends on:

i) The amount paid into the scheme.
ii) How well the investment fund(s) performs.
iii) The annuity rate at the date of retirement.

Stakeholder Pensions
Stakeholder pensions are personal pension plans that meet statutory requirements. For example, provider charges may not exceed 1.5% p.a. of the fund value for the first 10 years of the policy and there cannot be any transfer penalties or exit penalties. Whilst there is no minimum level of contribution, product providers can refuse to accept premiums below £20. A stakeholder pension is basically a personal pension money purchase arrangement designed to provide a lump sum and income in retirement, but with limited access to investment funds.

The member of a personal pension or stakeholder pension can retire at any age between 55 and 75. At the chosen retirement date, up to 25% of the money built up can be taken as a tax-free lump sum. The remainder must be used to provide an income by either purchasing an annuity with an insurance company or alternatively entering into “pension drawdown” or “phased retirement”. Whichever option is taken it is imperative to receive qualified advice before making your decision.

Pensions are intended as long-term investments. The equity based ones are dependent on stock market movements, which mean that your capital is not usually guaranteed. Contributions won't affect your entitlement to the basic state pension.

There are two main fund types, which are:

i) With Profits:
The investment return from a ‘with profits’ fund is in the form of a discretionary bonus. The value of the bonus relates to the performance of the provider’s underlying investment in equities and bonds. The better the providers return, the better the bonus. Once a bonus has been allocated, it becomes locked in and normally cannot be taken away.
ii) Unit Linked:
These offer the opportunity to invest directly in a wide range of assets such as UK and overseas equities, property and bonds.

Please be aware of the nature of the risk involved with this type of investment and that the value of your investment may go down as well as up. Past performance is not necessarily a guide to future returns and therefore it is possible that you may not get back the full amount invested.

Maximum Contributions Limit
The maximum amount of contributions on which a member can claim relief in any tax year is the greater of:

i) The 'Basic Amount' - currently £3,600 gross
ii) The amount of the indivduals' relevant UK earnings that are chargeable to income tax for the year.

Lifetime Allowance
2006/07 - £1.5 million
2007/08 - £1.6 million
2008/09 - £1.65 million
2009/10 - £1.75 million
2010/11 - £1.8 million
Then to be reviewed every 5 years. This information was correct at the time of printing but may be liable to change.

Lifetime Allowance Charge (on excess) if benefits paid as a lump sum: 55%. If benefits are paid as a taxable pension: 25% with subsequent benefit taxed at individual's marginal rate.

Investing in unit-linked funds offers a lower security than does a with-profit fund, but there is the opportunity to achieve higher returns over the longer term.

You should not proceed to purchase any product without seeking independent financial advice. For more information contact us.

We offer an extremely competitive service, so for more information contact us on:
Telephone: 0115 945 5199 Fax: 0115 982 6250

David Burnell Financial Services Ltd
1 Albert Road, West Bridgford, Nottingham, Nottinghamshire NG2 5GS

Tel: 0115 945 5199 Fax: 0115 982 6250
Email: info@davidburnell.co.uk

David Burnell Financial Services Limited is an appointed representative of IN Partnership the trading name of The On-Line Partnership Limited
which is authorised and regulated by the Financial Services Authority.

Registered Office 29 Arboretum Street, Nottingham NG1 4JA. Registered in England, Company Number 4619997
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