Stakeholder
pension
Frequently asked questions
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Your questions
1. Are you eligible?
2. What about State Pension?
3. How much can you invest?
4. What are the tax rules?
5. How do I get tax relief?
6. What choices will I have when I take my retirement benefits?
7. What if you have an existing pension?
8. What are the charges?
9. What happens if you're ill?
10. What if you die before you retire?
Our answers
You can take out a Stakeholder Pension with Norwich Union if:
You are under age 75 and you are resident* in the UK.
You may also be eligible if either you or your spouse works overseas for the UK Government.
* Resident
You're likely to be classed as 'resident' if you live in the UK all or most of the time. If you're not sure, please ask your local tax office.
So we can make sure your payments continue to be eligible for tax relief, you should tell us if:
- you stop being resident in the UK, or
- you stop having earnings subject to UK income tax, or
- you or your spouse stop working for the UK Government overseas.
You should also tell us if you move abroad or start working abroad as this may affect what you can pay. We'll tell you more about this at the time.
If your employer has a company pension scheme that you are able to join, you should always consider your employer's scheme first and discuss this with your financial adviser.
Could you really cope on just £90.70 a week? If you're single, that's the Basic State Pension (2008/2009). Married couples only fare slightly better... they would only get a total of £145.05 per week
If you are, or have been, an employee you may also qualify for a combination of The State Earnings Related Pension Scheme (SERPS) and The State Second Pension (S2P). This is not available to those who have been self-employed for all their working life.
The actual amount of Basic State Pension, SERPS and S2P you receive will depend on the National Insurance contributions you have paid during your working life.
There is likely to be a large gap between your income before retirement and the State Pension provision you receive when you retire.
The good news is that starting a Stakeholder Pension with Norwich Union will not affect your entitlement to the Basic State Pension.
You can start your Norwich Union Stakeholder Pension with as little as £20. This can even be paid by your employer, if you have one. Any amount paid by an employer will also count towards the minimum £20.
You can pay in as much as you can comfortably afford, but because of the valuable tax relief available, there is a maximum. You can pay up to £3,600 each year (inclusive of tax relief) into your plan even if you do not have any earnings or 100% of your UK taxable earnings if greater. There is an overall limit set by HM Revenue & Customs called the Annual Allowance. This is £235,000 in the tax year 2008/2009, rising to £255,000 by 2010/2011. If you or your employer make payments above the annual allowance, you may be subject to a tax charge. In the tax year that all benefits are taken under the plan the Annual Allowance will not apply to payments made into this plan.
You can make payments into your Norwich Union Stakeholder Pension regularly, either monthly or yearly. This is normally done by direct debit from your bank or building society account. You can also make one-off payments at any time. This could include money you have moved from another pension scheme.
You can increase or reduce the amount you regularly invest at any time without paying a penalty fee. If you want to stop paying altogether (for example, because you have left work to raise a family), you can stop and restart your payments whenever you like. This will affect how the fund grows.
You can also increase your payments every year in line with National Average Earnings. The minimum increase is 3% and the maximum is 15% of the amount you pay regularly by direct debit.
On 6 April 2006 HM Revenue & Customs introduced new rules about how much money you can build up in all your pension plans and still get tax breaks. These replace all the old rules and introduce new allowances.
Tax Relief
There's no limit on the amount that can be paid into this and any other pension plans that you have, but you won't get tax relief on payments over a certain amount.
HM Revenue & Customs allows tax relief on your personal payments to all your plans up to £3,600 a year or 100% of your UK taxable earnngs if greater.
Annual Allowance
There's an overall limit called the Annual Allowance. This is £235,000 in the tax year 2008/2009, rising to £255,000 by 2010/2011. If total payments from you and your employer to all your pension plans are above the Annual Allowance, you may be subject to a tax charge.
Annual Allowance doesn't apply in the tax year that all benefits are taken under the plan. Norwich Union won't accept payments from you that don't qualify for tax relief.
Lifetime Allowance
There is a limit, called the Lifetime Allowance, on the amount of money you can build up in all your pension plans without losing tax advantages. Any amount above this allowance will be subject to a tax charge when benefits are paid. The Lifetime Allowance is £1.65 million in the tax year 2008/2009, rising to £1.8 million by 2010/2011.
As well as the amount you're currently building up in pension plans, the Lifetime Allowance also takes into account the cash value of any pensions already being paid to you and any tax-free lump sums you have received.
If you already have pension funds that exceed the Lifetime Allowance or you think may exceed it in future, you should seek financial advice before taking out this plan.
Any statement about tax liability is based on our understanding of current law and tax practice. Future changes in law and tax practice could affect how much your plan is worth and your tax liability. Your plan could also be affected by changes in your personal financial circumstances.
You pay your payments less an amount equal to the basic rate of income tax. Norwich Union will claim this back from HM Revenue & Customs (HMRC) on your behalf and add it to your plan, together with the amount you have paid. This is often referred to as making payments net of basic rate tax.
For example, if basic tax is 20%, if you pay £80 into your plan, HMRC will add £20 to this, so the total invested is £100. This is known as basic rate tax relief and you will get this, even if you don't pay tax.
If you were to invest £40 each month, HMRC would add £10 a month, a total of around £1,200 in ten years! And this doesn't even take account of the potential investment growth during the ten years.
If you're a higher rate taxpayer, payments to your plan will only be increased by basic rate tax relief, but you will be able to claim higher rate tax relief on your annual self-assessment tax return.
Any statement about tax liability is based on our understanding of current law and tax practice. Future changes in law and tax practice could affect how much your plan is worth and your tax liability. Your plan could also be affected by changes in your personal financial circumstances.
6. What choices will I have when I take my retirement benefits?
You can use the whole of your fund to buy a pension or take part of the fund as a tax-free lump sum and use the rest to buy a smaller pension.
Normally, you can have up to a quarter of your fund paid to you as a tax-free lump sum. You can choose from a number of different types of pension income, for example:
- A pension that increases every year
- A pension that continues to be paid to your spouse after your death
Tax will be deducted from your pension income before it's paid to you. If you don't pay income tax, you can arrange for your pension income to be paid without tax being deducted.
If you start taking benefits after age 75 you won't be allowed to take a tax-free lump sum. You will have to use your whole fund to provide pension income.
You don't have to take your pension income from Norwich Union. You can move your fund to another insurance company at retirement to provide your retirement benefits.
We'll give you details of your choices nearer your retirement date and tell you how much of your Lifetime Allowance you have used. If you take benefits above the Lifetime Allowance there may be a tax charge. We'll tell you more about this if it applies to you.
7. What if you have an existing pension?
If you have been employed by more than one company during your working lifetime, then it is likely that at some point you will have built up benefits in one or even several company pension schemes.
On the other hand, you may already have taken out a private pension of your own. You can carry on paying into this as well as joining this plan.
In most cases you will be able to move pension benefits that you have built up in other pension arrangements to a Norwich Union Stakeholder Pension.
However, not all pension schemes work in the same way and so moving existing pension funds into your new plan may not always be the best thing for you to do. We recommend that you get financial advice before deciding to move an existing pension.
You can of course set up a Stakeholder Pension with us now and move money into it from other schemes later on.
The maximum charge is just 1% of the fund value each year. This charge covers the cost of administering your policy and looking after your investments.
If your fund is more than £20,000 we will refund some of the charge each month. The amount of refund increases as your fund grows - up to a maximum of 0.1% of the value of the fund each year.
The large fund rebate is credited back to your pension fund directly in the form of extra units.
| Fund value | Annual refund % |
|---|---|
| Less than £50,000 | 0.00% |
| £50,000- £99,999.99 | 0.05% |
| £100,000 or above | 0.10% |
This makes a Norwich Union Stakeholder Pension good value for money and these low charges mean that more of your money is working for you from day one.
9. What happens if you're ill?
Long-term illness or disability could mean that you can no longer afford to make payments to your pension plan. To guard against this and protect the future value of your pension benefits, you can apply for Your Pension Protector @ Norwich Union. This means that Norwich Union will take over the regular payments that you would otherwise make to your pension plan, if you are unable to work for more than six months due to sickness or ill health during the term of your plan. The plan is available if you are not employed and you can make a claim if you are unable to perform at least three capabilities or you suffer from a serious condition as specified within the policy. Norwich Union will carry on making the pension payments for you until you recover, Your Pension Protector policy term ceases or you die, whichever happens first.
To apply for Your Pension Protector you must be under age 55. You will be asked to answer some questions about your health and occupation. Your answers will be kept strictly private and confidential.
For full details of Your Pension Protector, please ask for a quote and read the Key Features document.
10. What happens if you die before you retire?
If you die before you start receiving your pension, we will normally pay the full value of your fund as a lump sum.
To help us pay out this lump sum more quickly, you can name who you would like to receive it. If you change your mind, you can change the people named at any time. Your wishes are not binding, but we will bear them in mind when making payment. The advantage of this method of payment is that it will normally ensure that benefits are free of Inheritance Tax.
If you wish, you may be able to set up your own individual trust instead, so that we pay the money to trustees appointed by you. We can provide you with a trust form or you can use your own. We will need to see the original or a certified copy of the completed trust. We recommend that you see a solicitor before setting up a trust.
Any lump sum paid on death will count towards your Lifetime Allowance.
Instead of your fund being paid out as a lump sum, it can be used to give your dependants, such as your spouse or civil partner, an income for as long as they live. Any benefits paid in this way will not count towards your Lifetime Allowance.
If you are 75 years old or over and die before you start receiving your pension we cannot pay your benefits as a lump sum. The fund will normally be used to provide income for your spouse or dependants.
Please see the section "What are the tax rules?" for information about the Lifetime Allowance.
WC03006 03/2008
