Stakeholder Pensions...for the future you deserve

Transcription

1 Stakeholder Pensions...for the future you deserve

2 Why Scottish Equitable? Scottish Equitable is one of the UK s leading providers of pensions and investment products distributed through Independent Financial Advisers (IFAs). It is part of AEGON UK, which has assets under management of around 30 billion. Financial strength As part of AEGON UK, Scottish Equitable has the backing of the multinational AEGON Group, one of the world s largest listed insurers, with assets under management of around 180 billion. Scottish Equitable has been consistently awarded a strong financial strength rating from Standard & Poor s, the internationally recognised ratings agency. Investment management Scottish Equitable s sister company, AEGON Asset Management, employs highly qualified investment analysts and portfolio managers, who cover the world s investment markets as global research teams. Fund performance AEGON Asset Management has an impressive track record in terms of the returns that many of its funds have been able to deliver to its investors. Service Scottish Equitable is committed to providing a high level of expertise and customer service to its customers.

3 Why take out a stakeholder pension? We spend the majority of our lives working, so why not make your retirement as comfortable as possible? What would you like to do when you retire? Take more holidays, even travel the world. Spend more time with your family. Why take out a stakeholder pension? Spend your time relaxing and enjoying life, not worrying about money. Whatever you want to do, it should be a time in your life that you look forward to... And the key to achieving your dream or a comfortable retirement is to start contributing to a Scottish Equitable Stakeholder Pension Plan as early as possible.

4 Who can have a stakeholder pension? Anyone under the age of 75. You can pay 3,600 into a stakeholder pension even if you are a member of an occupational pension scheme, provided you have not earned more than 30,000 in any of the tax years from 2000/01 and have not been a controlling director since 6 April You can take out a stakeholder pension if you have no earnings or if you are not working, for example if you are unemployed or a carer. You can even take out a stakeholder pension for someone else, eg a spouse, child or grandchild and pay contributions on their behalf.

5 Who can have a stakeholder pension?

6 How much should I invest? Your life may be filled with new challenges and opportunities, but the Scottish Equitable Stakeholder Pension Plan is flexible enough to cope with your changing lifestyle. To help you work out the most appropriate level of contribution you should ask yourself the following questions: Roughly when would I like to retire? What will my salary be when I come to retire (taking into account reasonable pay increases over the years)? Compared to that, how much income will I need, given that the mortgage may well be paid off by then? Is this going to be enough to live on, or would I like to travel the world more, start new interests or activities, or possibly move house again? What other sorts of expenses do I think I ll have when I retire? What other income will I have when I retire? Will I want to take any career breaks? Your IFA will be able to help you assess all these questions and then estimate how much you need to contribute to meet these goals.

7 Paying contributions into your stakeholder pension plan could not be easier. You can choose to pay by direct debit or cheque and the payments can be paid monthly, yearly or as a one-off. The minimum you can contribute to your plan is just 20 (net of basic rate tax). Regular contributions can be a fixed amount or you can choose to increase your contributions in line with the National Average Earnings Index or by a fixed rate (eg 5%) each year. How much should I invest? There is also the opportunity to increase/decrease or even stop contributions if your circumstances change. Contributions can restart at any time with no extra charge. Contribution levels You can pay up to the simple contributions limit, which is currently 3,600, into your pension plan each tax year with no checks on your earnings. You may be able to pay more than this amount, but to do so you have to have a taxable income from either your employment or your self-employment, and have sufficient earnings to justify the amount you wish to pay in. If you are employed Your employer can also choose to pay regular or single contributions into your plan.

8 Investment choices You can choose from a wide selection of funds. To help you decide which funds might be the most suitable for you, we have split them into different risk profiles: Minimal risk Low risk Below average risk Average risk Above average risk Higher risk Alternatively, you can choose to invest in a defined Lifestyle Investment Strategy fund, which will automatically move your investments from funds with greater growth prospects to lower-risk investments as you near retirement. Stakeholder pensions are required to offer a default investment choice. Our default investment fund is currently the Stakeholder Balanced Lifestyle Fund. (The default investment fund may change in the future.) Unless you tell us otherwise on your application form, all contributions paid to your stakeholder pension will be invested in the default investment fund. Full details of our complete range of funds and their risk profiles are given separately in our Pensions Fund Selection brochure. Please ask your IFA for more information.

9 Switching funds If, at any point, you wish to change your mind about the fund or funds you are investing in, you simply need to complete a switch form and send it back to your IFA or directly to Scottish Equitable s Head Office. You can choose: Investment choices to leave existing investments where they are, but invest future contributions in new or different funds to move all existing and new investments into new or different funds to alter the proportion of new and/or existing investments between the same funds as at present any combination of the above You can make up to 20 switches in one plan year free of charge. Before making any decisions about changing your investment instructions you should consult your IFA.

10 Government pension schemes Basic state pension If you have a full National Insurance contribution record, you are entitled to the full basic state retirement pension. You cannot get your basic state pension until you reach state pension age (currently 65 for men and 60 for women). The Government reviews the basic state pension every year. State Second Pension (S2P) From 6 April 2002, S2P replaced the State Earnings Related Pension Scheme (SERPS). Only people in employment qualify for S2P. (Self-employed people do not qualify for S2P.) The S2P pension, payable when you reach state pension age, depends on your National Insurance contributions while you are in employment. S2P is paid in addition to the basic state pension. As an alternative, you can opt out of S2P (this is known as contracting out). Whether you do so or not will depend on a number of factors. Your IFA should carry out a detailed assessment before you decide. You also need to keep reviewing that decision with your IFA.

11 If you opt out of S2P, your employer s and your National Insurance contributions that would normally go towards your future S2P pension can be redirected and invested into your stakeholder pension plan. You choose where to invest them within your plan and buy units in the same manner as described earlier. When you come to retire, you cash in these units to provide yourself with a pension, instead of receiving the S2P pension. Government pension schemes

12 Death benefits What happens if I die? When you take out a Scottish Equitable Stakeholder Pension Plan, your dependants are automatically protected. If you die before you take any proceeds from your plan, the full value of the fund that your pension contributions (and any contributions made by your employer, if applicable) have built up will be used to provide a pension or cash sum for your spouse, your dependants or your estate. If you have opted out of S2P, the value of the fund that your redirected National Insurance contributions have built up is used to provide a pension for your spouse or, if you die without a spouse, a lump sum to your estate. The payment of any lump sum death benefits can be made either by Scottish Equitable as plan administrator, or by trustees personally appointed by you under a separate trust which you set up. Generally, lump sum payments would be free of inheritance tax liability; however, this is a complex area and we recommend you consult your IFA for specific advice on this.

13 Death benefits

14 Waiver of contribution If you become seriously ill or disabled and are unable to work, you may not be able to keep contributing to your plan. The amount of money available to fund your retirement would suffer as a result. You have the option, if you are working and are aged 18 or over, of taking out an additional plan (alongside your stakeholder pension plan). Therefore, if you became unable to work for up to six months because of a serious illness or accident we will continue to pay contributions to your pension plan on your behalf. Contributions to the plan will be paid until you reach your selected retirement date or age 60, whichever is earlier, or until you are able to start working again. You can choose to cover only your regular contributions, or the average of any lump sums you have been paying over the past few years, or both. This facility costs extra and is available and paid out subject to certain conditions. Full details are available from your IFA.

15 Waiver of contribution

16 Choices at retirement When you apply for your stakeholder pension plan, you will be asked to choose a selected retirement date. This is the date you plan to take your benefits and it can be set at any age between 50 and 75. The date you choose can be changed at any time. If you work, it does not necessarily have to tie in with the date your employer has set for you to retire from your job. When you reach your retirement you have the following choices: Tax-free cash You can take up to 25% of the fund value as a tax-free lump sum. Pension income for life You can buy a pension for yourself only, or for yourself and your dependants, when you retire. This means that you cash in the units in part and use them to buy an annuity. An annuity is simply a plan whereby you pay a life assurance company the value of your plan and, in return, it pays you an agreed amount of income every year for the rest of your life. You can choose to buy your annuity from any company in the UK it does not need to be Scottish Equitable. Your IFA will help you find the best rate available for the type of annuity you want. There are a number of annuity types which provide one or more of the following features: A fixed level of income for the rest of your life only A guarantee that the income will be paid for 5 or 10 years, even if you die

17 A joint income for you and your spouse An income that will increase each year either by a fixed rate or in line with the National Average Earnings Index Choices at retirement You can choose to combine different features of these types to create the exact kind of annuity (ie pension) you need for you and your family. This pension can be taken at any time from your selected retirement age. Your plan is automatically split into two parts: protected rights contributions and non-protected rights contributions. The protected rights part will be the fund bought by your redirected National Insurance contributions and must be used to buy a pension. It cannot be paid as a tax-free cash lump sum, nor can this value be included in the value of the fund for the calculation of the tax-free lump sum. Flexible retirement plan As you get older you may decide to gradually retire over a number of years. Your IFA will be able to give you more information about Scottish Equitable s flexible retirement plans known as Income Drawdown and Phased Retirement. These plans are split into a number of segments and will give you the flexibility to take retirement income while your retirement fund remains invested. The use of these plans is only suitable in certain circumstances.

18 Taxation How are contributions taxed? The contributions you make to your stakeholder pension plan for retirement benefits are paid net of basic rate tax, regardless of whether you are employed, self-employed or not working. For example: A basic rate taxpayer pays 78 into a stakeholder pension plan and the Inland Revenue will add 22 to this, so the total amount invested is 100. Waiver contributions do not qualify for tax relief. How is your pension taxed? When you buy a pension with the units in your plan (after you have taken the tax-free lump sum, if selected), the payments you receive are treated as normal earned income just as though they were a salary from an employer. This means that you will be able to offset your personal and other tax allowances against the pension payments you receive.

19 Taxation

20 Some other important features of your stakeholder pension plan How do I know I am making the right decision? Your IFA will be able to help you consider all the alternative savings vehicles to make sure you are making the right decisions about whether you should take out a stakeholder pension plan and how much you should contribute. In addition, before you apply you may receive some information about stakeholder pensions and how they work. This will also include a decision tree diagram that takes you through all of your retirement options. How much might I receive from my plan? Before you apply, your IFA may arrange to provide you with a personal illustration showing a number of different estimates of the benefits you could receive this is known as your key features. This illustration will also detail the costs of setting up and looking after your plan. Alternatively, this information may be given to you with the information accompanying your decision tree. Once your plan is set up, you can request a statement of your account at any time. This will show the number of units you have bought to date, plus an updated illustration of the estimated value of your plan when you retire. Transfers from other pension schemes If you have pension benefits with other companies, or with previous employers, it may be possible to transfer these to your stakeholder pension plan either when you apply or in the future. In this way, you can combine all your retirement nest eggs into one plan. Before you decide to do this, a detailed assessment will need to be carried out by your IFA. He or she will need to help you assess whether it would be better value for you to transfer, or whether you might receive higher benefits by leaving your old pension plans where they are. Contribution breaks If, at any time, you decide to take a contribution break for any reason, you can simply suspend payments to your stakeholder pension plan. The units you have

21 bought to date will stay invested and grow in value in line with the results we achieve in the fund or funds you have chosen. You can restart payments at any level you choose it need not be at the same level as when you stopped paying. Transferring the proceeds of your stakeholder pension plan If, for any reason, you become unhappy with your stakeholder pension plan, or if your circumstances change, you can transfer the value of your plan to another provider or another pension scheme (perhaps a new company scheme if you change jobs). Your IFA will be able to provide you with more details. Maximum limits Because of the very generous tax concessions available to private pension plans, the Inland Revenue sets limits on the maximum amount you can pay into your plan. (These limits only apply if you are paying over the simple contributions limit into your pension plan.) The limits are based on a percentage of your earnings depending on your age. The older you are, the higher the percentage of earnings you can pay. Some other important features of your stakeholder pension plan Limits for contributions over the simple contributions limit The earnings figure used by the Inland Revenue for this purpose is known as net relevant earnings, which, in broad terms, is the total amount of income (including any bonuses and overtime) you can be taxed on. If you are self-employed, your net relevant earnings will be your gross profit for the year. There is a maximum amount that can be taken into account when calculating this figure, called the earnings cap. In the 2003/04 tax year, this is 99,000. If you want to pay contributions above the simple contributions level, you must nominate one year s earnings to use when working out the maximum amount you can pay. This will be known as your basis year earnings.

22 Some other important features of your stakeholder pension plan (continued) This level of earnings can then be used to work out the maximum pension contribution for the following five tax years as well. You can choose the tax year you first make a contribution to your stakeholder pension plan as your basis year or any one of the previous five tax years. For example: If you nominate your earnings in the 2000/01 tax year as your basis year earnings, these can be used to work out your maximum contribution for the current tax year and the next five tax years, ie from tax years 2001/02 to 2005/06 inclusive. To support your nomination of a basis year, you have to supply evidence of earnings for the year you select. For example, a declaration from your employer specifying your net relevant earnings if you are employed, or a written statement from your accountant, solicitor or auditor showing your net relevant earnings if you are self-employed. Your IFA will be able to tell you more about this. Moving jobs A major advantage of your plan is its portability. If you move jobs, your stakeholder pension plan moves with you. In addition, if you move from being self-employed to employed, or even if you stop working altogether, you can simply continue your contributions within the limits outlined above. Any new employer may contribute to your plan as well. Note: In some cases, it may even be possible to transfer the value of your stakeholder pension plan into your employer s company pension scheme, but you should consult your IFA before proceeding. Occupational pension scheme membership If you are a member of your employer s occupational pension scheme or you move jobs and want to become a member, then you may be able to contribute, or continue to contribute, to your stakeholder pension plan at the same time as your occupational pension scheme.

23 You may be able to pay in contributions to your stakeholder pension plan up to the simple contributions limit, if: you have not been a controlling director in the current tax year or in any of the previous five tax years your earnings have been less than a certain amount, the remuneration limit (ask your IFA for more details), in one of the previous five tax years. This year is known as your qualifying year. Moreover, you will be able to continue contributing to your stakeholder pension for a further five tax years after your qualifying year, even if your earnings increase above the remuneration limit. Note: When considering if you can pay contributions, please note that tax years before 2000/01 do not count. However, if you have another source of earnings, in addition to the one that relates to your occupational pension scheme, then you are unable to have a concurrent stakeholder pension but may be able to contribute to a stakeholder pension in respect of your additional earnings. Please ask your IFA for more information. Some other important features of your stakeholder pension plan Important notes The information in this brochure is based on Scottish Equitable s understanding of current law and Inland Revenue practice, which may change in the future. Benefits are not guaranteed. The final benefits from contributions invested in the unit-linked funds depends on the value of the underlying investments, which may go down as well as up. Past performance is not necessarily a guide to future performance. The value of tax relief depends on your individual circumstances. Scottish Equitable reserves the right to vary charges in the future.

24 GD/2823 Scottish Equitable plc, Registered Office: Edinburgh Park, Edinburgh EH12 9SE. Registered in Scotland (No ). Regulated by the Financial Services Authority. Amember of the AEGON UK Marketing Group. IND/02581/06/03