Personal Pensions, Company Pensions & SIPPS

Although any kind of asset or savings vehicle can help provide income in retirement, pensions are the ones specifically designed for the purpose.

All approved schemes enjoy tax relief on contributions up to the scheme member’s highest marginal rate of income tax (although limits apply)

They also benefit from the growth in the funds not being taxed and when benefits are taken, generally 25% of the fund can be taken tax free (can vary) and the remainder is usually there to provide taxable income for the rest of your life (or taken in one go, in stages, or even be passed on tax efficiently to future generations) in addition to any state pension. Employers contribute to pensions, saving them Corporation Tax and substantial National Insurance contributions, meeting the requirements of auto-enrolment and enhancing the package they can offer to retain employees.

Personal pensions (including stakeholder schemes) benefit from the same tax breaks as other schemes and used to be there to accumulate funds to buy an annuity with the proceeds after the cash has been taken. This no longer has to be the case and most schemes are offering unsecured income through the use of drawdown now. An annuity provides income for life and spouse’s benefits and guaranteed payment terms can be built in at a cost. The income you will have in retirement will depend on fund performance up to retirement and annuity rates available when you come to retire, or on-going investment returns if you opt for drawdown. Generally there is no lump sum from any unspent pension pot on death after retirement when an annuity has been purchased, unless guarantees have been purchased, but drawdown plans can be passed on to anyone nominated to receive lump sums and/or income and the tax position depends on the age at which the original planholder died.

Company Pensions also have the tax breaks that all pensions have, with the added benefit that your employer contributes to them and they can provide death in service benefits, ill-health pensions etc. Company schemes can have defined benefits (where you know what you will get for each year of service), or simply defined contribution (where you know what you and the employer will pay in to the scheme each month and what you get depends on fund performance and/or annuity rates). Again, generally there is no lump sum from any unspent pension pot on death after retirement in a scheme pension, unless the pot is transferred to a defined contribution arrangement that offers drawdown, when all of the pot can be drawn out in cash if desired (subject to tax and a very complicated area, so seeking advice is always recommended and sometimes mandatory).

SIPPs, or Self Invested Personal Pension schemes offer the additional benefits of being able to hold different assets, such as commercial property, cash deposits and share portfolios in the beneficial tax environment of a pension. In addition they offer far more flexibility when it comes to drawing cash lump sums and income, without the need to buy an annuity and have the ability to pass on the pension pot on death to provide benefits for your spouse, dependants, or anyone you would want to benefit from it, either as an income, or lump sum (in certain cases tax free!) and it does not form part of your estate for inheritance tax purposes, so will not add to the bill, while it’s still a pension pot.

Over the years there have been many different schemes with differing rules applying to them and where people change employment and employment status it can get very confusing as to how much will be coming from where. This is especially true with recent changes to taxation limiting further how much a person can have in their pension pot without paying tax and how much they and their employer can pay in each year. With Pension Freedoms introduced in April 2015 pensions and the benefits they provide have never been as flexible, so quality advice is always needed and great value for money.

We can help with establishing what entitlements you have, how much it should yield, if it could do better invested elsewhere and whether you are paying any unnecessary charges or taxes that can be avoided or reduced.