From 1st April 2005 the low charges cap for new Stakeholder investors will be raised from 1% to 1.5% - a 50% rise.
Existing Stakeholder investors, including those who start investing before 1st April 2005, will continue to enjoy the future protection of this low charges cap at 1%.
What are Stakeholder Investments?
Stakeholder pensions were part of a Government initiative launched in 2001 that aimed to encourage savings towards retirement via low cost pension plans.
Unlike Personal and Executive pensions, which have no statutory protection against high charges, Stakeholders enjoy a fee structure that caps charges at a maximum of 1% of the fund value pa.
The insurance companies that provide these newer plans have to commit to providing investments that also have no initial charges and offer low levels of minimum investment with complete flexibility to alter contributions.
...low levels of minimum investment with complete flexibility to alter contributions.
Stakeholder Pensions:
- Are available to virtually anybody.
- Fully flexible. Contributions can be altered monthly.
- Can be funded for children/grandchildren and non working spouses.
- Up to £300 per month can be invested irrespective of salary.
- More than £300 can be invested based on age related allowances.
- Can be funded from your limited company.
Read more about the advantages of pension investments for contractors at our Investments Centre
Why are Pensions Advantageous?
Pension investments can be invested from gross income (before tax) and thus attract tax relief at the investors highest marginal rate of tax.
The tax relief available depends on the level of income and can be up to as much as 48% for contractors caught by IR35.
For example, with 48% tax relief it means for each £100 contributed, the tax man invests £48 whilst you invest £52.
The funds invested then grow in an efficient tax-free pension fund.
You can calculate your own personal advantages using the Contractor Pension Calculator
What can you do now?
Contractors have a window of opportunity to open a stakeholder pension, even at only a token level, to secure the current advantageous terms for any future investment. Over time the saving in admin charges could be substantial yet many financial advisers seem reluctant to talk about these low ticket plans.
All funds transferred are classed as a legitimate business expense irrespective of your IR35 status.
funds transferred are classed as a legitimate business expense irrespective of your IR35 status
Stakeholder pensions allow you the freedom to alter contributions, literally on a month by month basis as your budget/contract dictates, all without penalties or fees of any kind. In this way a Stakeholder has the flexibility needed to cope with the reality of life as a contractor.
With the charges cap deadline fast approaching and the tax year drawing to a close providers are expecting a pick up in activity for this often overlooked savings vehicle.
Published: Monday, February 28, 2005
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