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Thinking of starting a pension? We know that understanding how pensions work can be confusing. This page aims to answer some of the questions you’ll have, as well as giving you the reasons why you should consider starting to save for your retirement today.
A Stakeholder or personal pension is a tax-efficient way of saving for your retirement.
You can contribute to a pension if you’re employed, a fixed-contract worker,
self-employed, or if you're not working but able to afford the contributions.
You can get a pension from a bank, building society, insurance company, or through a financial adviser. You can pay contributions regularly that are invested to build up your own pension fund. You can also make lump sum contributions whenever you like and transfer pension funds into your plan from other UK Registered Pension Schemes or from some overseas pension schemes.
When you take your benefits, you can use your pension fund to buy a ‘pension annuity’. This will pay you a regular income for the rest of your life. How much you'll be paid will depend on a number of factors including the size of your fund and the annuity rates at the time you take your benefits.
When you take your pension income you can normally choose to have up to 25% of your fund as a tax-free cash lump sum.
You can read more about our annuities here.
Stakeholder pensions were introduced by the Government in April 2001. Their purpose is to encourage more people to save for their retirement by offering a simple and flexible personal pension.
Stakeholder pension plans, like other pension plans, are tax efficient. Here's how:
Stakeholder pensions are very flexible.
There are certain limits on how much you can pay in and get tax relief on:
'Relevant UK earnings' means all of the earnings that count towards the amount that you can contribute to a personal pension.
This includes your salary, bonuses, tips, overtime and benefits in kind. In fact, most sources of income that are taxable. The main exclusions to this are income from pensions, State benefits, and certain controlling director payments.
There are no restrictions on the value of the total benefits payable from all your UK Registered Pension Schemes. However, HMRC will tax any benefits over your Lifetime Allowance at up to 55%. The tax rate depends on whether you take the amount above the allowance as cash or income. The Lifetime Allowance, which takes into account all benefits you receive from registered pensions schemes, is £1.25 million for the 2014/2015 tax year.
Certain circumstances may mean you have a personal Lifetime Allowance – these are known as fixed, primary or enhanced protection and you will have completed an HMRC election form if they apply to you.
You can apply for a Stakeholder pension online but before you do, you must read the following documents. If you don't understand any point, please do not hesitate to contact us for further information.
You can print them and keep for future reference. We also recommend that you read the Money Advice Service's website. This will help you make sure that a Stakeholder pension is right for you.
On this website, we're not seeking to give you advice. It's up to you to decide if this Stakeholder pension is suitable for you. If you're unsure, contact us for more information.
Our contributions calculator can help you work out how much income your pension contributions might give you when you take your benefits.
It's wise to regularly review how much you’re putting into any pension plan. Many people choose to gradually increase their contributions as they can afford to and as their earnings rise.
The value of your pension fund may fall as well as rise.
It’s particularly important to remember this if you’re close to taking your pension benefits. You also need to remember that your money is tied up until you take your benefits.
Once your pension plan is up and running with us we’ll send you an annual statement on the anniversary of your plan. This will tell you how much you’ve paid in during the last year and the current value of your pension fund. You should read this statement carefully.
You may benefit from lower charges when you apply for our Stakeholder pension online. If you apply online through this website the temporary annual management charge, which normally applies to funds of £15,000 and under, won't apply.
After reading the documents that make up the key features, it takes just 10 to 15 minutes to complete your application. You can apply online today.
When setting up a Stakeholder pension you have the option of choosing a Lifestyle Profile. You can read more about Lifestyle Profiles on our Funds made clear page.
This is where your contributions are initially invested in funds for the potential of
long-term growth and then your investment is gradually switched into funds that are considered to be lower risk, as you get nearer to your chosen retirement date.
There are several options available to help you choose your pension fund/s.
If you’re not sure or can’t decide right away, we’ll automatically invest your payments into our Multi-Asset Lifestyle Profile. Your payments will initially be invested in our
Multi-Asset Fund. Then, as you approach your selected retirement date, we’ll gradually switch your investment into our Over 15 Year Gilt Index Fund and the Cash Fund, which are considered to be lower risk funds.
If you want to understand more about funds and Lifestyle Profiles take a look at our Funds made clear page. Then you can decide whether to choose a selection of funds or one of our Lifestyle Profiles.
If you’re confident choosing your own funds, you can review the fund information and factsheets on our Pension fund choices page.
You should also read the Stakeholder key features (PDF: 330KB) and the Choosing your investment fund (PDF: 175KB) brochure. If you're still unsure which funds to choose, you may want to talk to an adviser. Visit www.unbiased.co.uk to find your local adviser.
All investments carry an element of risk. Some of the risks are listed below. Please read the Stakeholder key features (PDF: 330KB) for further information.
You need to consider that the value of the units, which make up your fund, can fall as well as rise. This is especially important when you’re close to your chosen retirement date and may want to take less risk on your pension fund.
The amount of pension income provided by your pension fund will depend on a number of things, including the amount paid into the fund, charges, investment returns and the rates available to buy your pension income when you decide to take your benefits.
The fund or funds you choose to invest in will have specific risks. These risks are described in the Choosing your investment fund (PDF: 175KB) .
When you take your benefits you can normally take up to 25% of your pension fund as a tax-free lump sum. The remainder is used to provide a retirement income for you, for example by buying a pension annuity. This income will be taxable. You can buy a pension annuity from us or from another provider. You can read more about our annuities here.
You can normally take your benefits between the ages 55 and 99. The pension income from your Stakeholder pension will depend on a number of things, which will include how much you contribute, charges, investment returns over the period your contributions are invested for, your age and the financial market conditions when you take your benefits.
Before you decide to transfer from another pension plan we'd recommend you get financial advice first.
You need to consider if a transfer is to your advantage, so you need to look at several factors such as charges, investment choices and any guarantees that may be lost.
If you’re looking for advice on transferring a pension fund into your existing
Legal & General Stakeholder plan you can contact an adviser. An adviser is a person who is not tied to any one financial institution and is qualified to give financial advice on life insurance, pensions, investments and other financial products. Visit www.unbiased.co.uk to find your local adviser.
You may be able to pay up to £3,600 gross each tax year into a Stakeholder pension plan for your partner (regardless of whether they are working). This means they will have their own pension income when they take the benefits.
You could also start a Stakeholder pension plan for your children or grandchildren. Investing in one of our Stakeholder pensions on behalf of a child is a great way to help provide for your child’s future.
You can see how much your child's pension plan could be worth at retirement age by using our Stakeholder calculator for children.