Stakeholder Pension Conditions
The Stakeholder pension is a type of personal pension plan that is required by the government to meet certain criteria:
- AMC's (annual management charges) must not be greater than 1.5% of the funds total value. This drops to 1% per year when the plan has been running for 10 years.
- Pension providers are permitted to charge the fund for associated running costs such as stamp duty and the cost of trading for the fund.
- Pension providers must allow transfers from other pension schemes
- There must be no penalty for transferring out to another stakeholder pension.
- The lowest contribution must not exceed £20 in any period.
- Contributions can altered without penalty.
- Regular contributions can stopped or continued without penalty.
Employer Obligations to offer Pension Schemes
Employers with five or more employees are usually required to offer either a stakeholder pension or a pension plan which meets the law's minimum requirements. Where this is the case, the employer must provide the option to deduct contributions from earnings to pay into the pension scheme on behalf of the employee. Employers may pay into the pension plan but are not obliged to do so.
Contribution Limits / Annual Allowance
You may pay as much as you like into your pension schemes but there is a limit on the tax relief given. UK tax payers will receive tax relief on contributions from their earnings up to a maximum of £245,000 for 2009/10. This will increase to £255,000 in 2010/11, once the government has affirmed that there will be no additional increases for the next five years.
Those who are not earning may also contribute to a pension scheme but only up to £2,880 per year (ie £3,600 gross with tax relief at basic rate).
Pension Tax Relief Restrictions for High Earners
The 2009 Budget has stated that from 5th April 2011, higher rate tax relief will be restricted for individuals earning £150k per annum or over. The tax relief will be tapered to 20% as income rises to £180k per annum. Those earning below £150k per annum will be elligible for the full 40% tax relief. This rises to 50% from 6th April 2010 to coincide with the new 50% income tax rate.
The interim ‘anti forestalling’ provisions announced by the Chancellor will apply to those who from 22nd April 2009:
- have an income of at least £150k per annum in the current or either of the two prior tax years.
- have changed their usual contributions.
- have total total contributions in excess of £20k per annum following any changes.
If the contributions prior to any changes were less than £20k per annum then a special 20% annual allowance charge wil be made on any future contributions over £20k per annum. If contributions are already over £20k then the contribution amount above 20k will face charges. It will not be possible to avoid charges by using salary sacrifice to reduce income below £150k if salary sacrifice is implemented after 21st April 2009.
Effectively, this charge will reduce tax relief to 20%. This will likely increase to 30% from 6th April 2010 to coincide with the new 50% income tax. Charges will be collected following submission of self assessment tax returns.