1. Pensions
  2. The Open Market Option
  3. Stakeholder Pensions
  4. Self Invested Personal Pensions (SIPPs)
  5. Flexible Personal Pensions
  6. Unsecured Pension Income (USP)


The significant advantages that pensions have is that you can get tax relief of up to 40% on your contributions on up to 100 per cent of your earnings subject to an annual allowance.

If you have little or no earnings you can still get tax relief provided that your contributions do not exceed £3,600 for the year.

If your employers contribute to your pension scheme they will also enjoy tax relief on their contributions.

The pension fund you invest in will grow free of income tax and the sale and disposal of any investments will not be subject to capital gains tax.

When you decide to take the benefits you can usually take a lump sum of up to 25% of the fund as cash, free of tax.

If you die before any benefits are paid out, the accumulated fund can normally be distributed tax-free to your spouse, civil partner and/or dependants.

The Open Market Option

It is essential to shop around for the best provider using the open market option facility. Insurance companies have been obliged to tell you about your freedom to move your money since 2001 but nearly 70% of pension holders just stick with the company that managed their funds. The spread of rates across companies is getting wider and you could improve your income by about 15% a year.

Research reveals that 40 per cent of those who buy an annuity each year could qualify for a significantly higher pension income, once their medical history is taken into account.

Here smoking, for instance, is an advantage! Certain medical conditions mean you could enjoy up to 25 per cent extra through an enhanced annuity. It is virtually impossible to be sure who will come up with the best income for you because they all view individual risks differently so we will be happy to approach them for you.

Stakeholder Pensions

Stakeholder pensions are low cost personal pensions. They have to meet minimum standards laid down by the government. All employers who employ five or more staff are required to offer an approved stakeholder pension scheme, and collect and pass on employee contributions to the scheme.

Some important features include:

  • Employees can make contributions from their pay.
  • Pension provider companies cannot charge stakeholder members more than 1.5% of the fund per annum for the first 10 years (1% thereafter).
  • Employers are not required to make contributions to their employeesÂ’ stakeholder pensions.
  • All schemes must be registered with the Pensions Regulator.
  • The stakeholder pension contract must not have exit penalties for members transferring into or out of the stakeholder pension scheme
  • All stakeholder pensions schemes must accept contributions of £20 or more.

Self Invested Personal Pensions (SIPPs)

If you want to invest in your favourite shares or hedge funds you can build your own pension fund. For people who specifically want to invest in commercial property, a SIPP can offer a tax efficient route to control over your pension. However, successfully buying and managing property is a specialist area where the procedures and costs need close attention.

Sipps can be expensive to run and are often uneconomic unless you have a fund over £100,000. They are not right for everybody and you can often get access to a very wide range of funds through flexible pensions.

Flexible Personal Pensions

Up until a few years ago, relatively few UK pension funds ventured outside the three main sectors of shares, bonds and property in the funds that they offered. Now, other asset classes and investment techniques are being offered. Portable alpha, absolute return strategies and unconstrained investing are all examples of new funds that can be found in flexible personal pensions.

Commodity funds have had very strong returns as the rapid industrialisation of China and India has also pushed up demand for the raw materials used in manufacturing. With initial charges of 5% and above and annual management charges often in excess of 1.5%, these specialist funds are more expensive than stakeholder pensions but offer the active pension investor the potential for outperformance.

Unsecured Pension Income (USP)

A key decision you must make is how to draw the benefits from your pension plans to ensure that you are able to continue to enjoy a similar standard of living in retirement that you had while you were working. USP creates a variable income stream, after you have taken your tax-free lump sum.

With USP there are several points that you will have to take into consideration, including:

  • your age at retirement;
  • the size of the pension fund;
  • your attitude to investment risk;
  • your state of health;
  • other sources of income; and
  • available pension benefits, including the pension benefits of a spouse/partner.

The maximum income is set every five years and if your fund value increases you can increase the level of income you receive.

However, there are considerable risks:

  • Taking withdrawals may reduce the value of the remaining fund especially if the investment returns are poor and you take a high level of income. This could result in a lower income for you when and if you eventually purchase an annuity.
  • The returns on your investments may be less than those shown in the quotations we will supply.
  • Annuity rates and alternatively secured pension rates may be at a worse level when you eventually buy an annuity or make use of an alternatively secured pension.
  • When maximum withdrawals are to be taken it will not be possible to continue making these high withdrawals during the period before taking an annuity or an alternatively secured pension.

It is therefore vitally important that we provide a review of your plan at least once a year to ensure that the USP plan continues to match your aims and that it remains the best option for you.

PLEASE NOTE: The value of investments can go down as well as up. All product providers use the same rates of growth for illustrations but their charges vary. They also use the same rates to show how funds may be converted into pension income. The growth rates used may not necessarily be appropriate for pension vehicles that are invested in currencies other than sterling. Pension benefits may also be affected by fluctuations in exchange rates. Do not forget that inflation would reduce what you could buy in the future with the amounts shown. Your pension income will depend on how your investments grow and interest rates at the time you retire. Tax concessions are not guaranteed and could change in the future - this could affect the value of an investment.