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In the last few months, we have been bombarded with news stories about the 'pensions crisis'. Hardly a week goes by without another dose of doom and gloom - top companies closing their final salary schemes to new joiners, falling investment returns, falling annuity rates, the possibility that the state retirement age will have to be increased, debates over whether or not to contract out of the state second pension and so on.
The positive aspect of all this negative publicity is that people are becoming aware that they have to review their pension provision - all too often in the past, there has been a tendency on the part of the British public to stick their heads in the sand at the mention of pensions. The brutal fact is that most of us don't save enough for a comfortable retirement and need to do something about it.
So what should you do? The first thing is to find out if your current provision is adequate - your personnel department will be able to help if you are in a company scheme or you can contact us for advice.
If you are in a final salary scheme, such as those offered by public bodies, is there scope for buying extra years?
Members of occupational schemes can pay up to 15% of their remuneration (including taxable benefits) into a pension scheme, irrespective of the level of employer contributions - how much are you paying? If there's room for increased contributions, you may want to pay into your employer's AVC (Additional Voluntary Contributions) scheme. Or, if you earn £30,000 p.a. or less, you can contribute to a stakeholder pension in addition to your company scheme - this may be preferable to an AVC, as you are not tied to your main scheme's normal retirement age and can take benefits from age 50 . Furthermore, you can take up to a quarter of the stakeholder fund as a tax-free lump sum, which you cannot do with an AVC.
If you are not in an occupational scheme, you should consider making payments to a stakeholder pension. Your employer may offer such a scheme, although he is not compelled to contribute to it. These plans were introduced just a year ago and were targeted primarily at the 5 million workers earning less than £20,000 - the section of the population the Government felt was not making adequate provision for retirement. Take-up has been poor, however, with less than half a million stakeholder accounts opened.
The advantages of stakeholders are that charges are low (the annual management charge is capped at 1%) and the plans are flexible. There are no penalties for stopping or varying contributions or transferring the plan to a different company. They are simplicity itself. The maximum you can contribute will depend on your age - limits vary from 17½% of remuneration for younger people up to 40% for those aged 61 and over. For more information, contact us.
See our page of pension advice for gay men.
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