Stakeholder Pensions
A stake holder pension is a fund of money you build up throughout your working life that will be paid out in income once you retire.
These types pensions can be more tax efficient as you are entitled to relief up to the value of £2,880 a year or 100% of your UK taxable earnings should this be greater. So including the tax relief the sum of £2,880 would in effect become £3,600. This tax relief can change under different personal circumstances. As well as this bear in mind any future changes to pension legislation which could impact on your stake holder pension.
So what are the benefits?
One benefit is that you can choose the funds where you money is invested. Or if you would rather, you can use a fund manager (usually employed via your insurer) to decide for you. The funds you choose should be based upon the amount of risk you want to take. Higher risk funds generally yield a better return if they go up, but can also go down. Lower risks funds generally yield a lower return, but obviously the ‘risk’ element is lower.
A fund manager may charge up to 1% of the value of your fund for managing your investments. Once you retire you can then take your fund and turn it into an annuity. Pension annuities allow retirees to take 25% of their fund tax free on purchase, with the rest of their income paid out annually until they die. There are dozens of variations on the types of annuity you can get in the UK. For the best possible annuity rates, compare providers nearer the time you wish to retire.