Stakeholder Pension Schemes

by Pension Forecast

John asks…

What are the benefits of a HSBC stakeholder pension?

The amount I pay each month does not seem to justify the appalling predicted yearly amount of pension I will receive if I retire at 60. What incentive is there to continue paying into this plan especially as I pay into my employers pension scheme. It appears I would be far better off putting this money into an ISA account inspite of today’s interest rates.

Pension Forecast answers:

The answer depends upon what you are saving for. If it is retirement, pensions are almost certainly the best starting point because of the tax relief. For every £100 you pay in, it costs you just £80. A cash ISA will almost certainly not get close to the potential returns from a pension plan.

Your first step should be to maximise your employer’s pension plan – for example, if you pay in more, does your employer pay in more.

A stakeholder pension is a simple pension scheme and the charges are capped. The projections probably may not look very attractive at first sight, partly because the rates of return shown are those set by the FSA and you may enjoy better (or worse) returns.

There are four issues which will determine how high your pension fund will be at retirement: the amount you pay in, the time you invest for, the charges and the performance of the investments. If you are unhappy with the performance look to other pension schemes, but stick with pension savings.

Disclaimer:
The answers above are for guidance only and should not be acted upon without you receiving independent financial advice relevant to your circumstances. To find an IFA please go to http://www.unbiased.co.uk

Mandy asks…

shall i move my stakeholder pension into company scheme?!?

Until recently I worked at a company with no pension plan. So I started a stakeholder about six years ago.

Now I have moved to a new company that has a pension plan – and they’ll make contributions based on how much i contribute.

My question is this, shall I:

a. move my stakeholder over into the company plan
b. keep the stakeholder where it is – but start paying into the company plan
c. keep going with the stakeholder and don’t do anything

Now I am sure a or b is the answer – but any guidance would be muchos appreciated!

Pension Forecast answers:

Either (a) or (b) …

I’ll assume the Company Scheme is ‘money purchase’ (i.e. Similar to stakeholder) .. So I would say FIRST check actual total performance of the Company Scheme against the Stakeholder .. If Company has done better, move your Stakeholder asap. If not, leave it where it is.

NB. Its the overall PERFORMANCE that counts (not the actual charges == although since the Company will almost certainly be paying the Scheme charges, moving is guaranteed to save costs).

IF they REALLY ARE willing to make contributions based on how much you put in, put in the MAXIMUM you can afford ..

Carol asks…

Which is a better pension scheme?

… if you are working for a stable company, which pension scheme would be a better option.
A defined benefit pension scheme, or a stakeholder pension with an employer contribution?

Pension Forecast answers:

Defined benefits are better – which is why no company offers them any more.

Laura asks…

Which type of pensions are the most beneficial in the 21st century?

State pensions, occupational pensions, stakeholder schemes, personal pensions? Why do you believe this and why? Do you think there is any difference between men and women?

thankyou!

Pension Forecast answers:

All pensions now work the same: contributions enjoy basic rate tax relief for all and some higher rate taxpayers can also claim higher rate tax relief.

This means that a £1,000 contribution costs a basic rate taxpayer £800 and a higher rate taxpayer £600.

If you have the chance to join a company pension (occupational pension) you should do so. This is because most employers pay into company pension schemes and if you don’t join you will miss out on the contribution.

For private pensions, stakeholder pensions are low cost but have limited investment choices. These are good pensions for those who take little interest in their pensions. My favourite private pension is the low cost Self Invested Personal Pension (SIPP) through a fund supermarket. As the name suggests these pensions are low cost but, unlike stakeholder, have significant investment choice, often over 3,000 different funds. This provides the ultimate in flexibility. The right low cost SIPPS start from £50 or £1,000 as a lump sum.

Disclaimer:
The answers above are for guidance only and should not be acted upon without you receiving independent financial advice relevant to your circumstances. To find and IFA please go to http://www.unbiased.co.uk

Susan asks…

pension help please???

i have a stakeholder pension with norwich union and have had it for years. my new employers now also pay into this for me. but when i was seeing the pension guy he said that i could get better value from it by using a scheme that is based on shares or something like that and not the usual government rate. is this true, and if so what’s it called??

Pension Forecast answers:

Ok stakeholder pensions were introduced in 2001, the Norwich union tended to have the managed fund as the default fund, so its will be invested about 75% in shares 5% property and 20% gilts and corporate bonds, your scheme may have a different default fund but their is absolutely no such thing as a government rate or government fund. NU do have a cash fund which gives around 3.8% at the moment ,what you need to do it sit down with the pension guy and get him to actually explain what the heck you are invested in now and what exactly he is proposing and why he thinks its going to be better for you , please check the advisers status and make sure he is an independent financial adviser not tied to just one or a very limited number of companies, a good adviser should be able to explain the scheme to you properly in about 20 minutes. If you don’t understand what you have got STOP and don’t do anything till you do understand what you are throwing money at, i spend my life making pensions simple for members of company schemes,its not rocket science and if it still feels like it is then get another adviser who can explain it in a way that you understand.

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