Pensions

Personal and Occupational Pensions

Contributing to a Pension can be a tax efficient method of making savings in regular payments or in lumps. Those aged 35 or below may contribute up to 17.5% of their income into a Personal Pension Plan. Higher percentages apply to older age groups up to a maximum of 40% for those over. Subject to prescribed limits contributions from earnings are fully deductible from earnings for income tax purposes; the contributions may be accumulated by the life office or other personal pension plan provider in a fund; and the retirement benefits when they emerge may be partly in the form of a tax-free lump sum and partly in the form of a pension that is taxable as earned income. Employers contributions to a personal pension plan are not treated as income of the employee or subject to PAYE. Such contributions come out of gross revenue and should be treated as deductible expenses of the employer.

Antipodeans

For most people the taxation advantages of contributions to a personal pension plan are outweighed by their concern to invest to protect their future and plan for their retirement. For expatriate workers in the UK however, there is an automatic dilemma.

On the one hand, the income invested in a pension plan recognised by the UK revenue authorities is tax free, namely the tax already paid will be paid into the pension fund by the government representing an extremely efficient method of saving. On the other hand, in general, it is normally beneficial for an employee to be covered by retirement benefit provisions either for the country of permanent residence, that is, where he or she is working on a long term basis, or alternatively, and if different, where the retirement is most likely to occur.

Multinationals

Many large multinational employers offer ex pat workers certain assurances that their pensions will not be affected by such matters as exchange rate fluctuations or UK cost of living index. Some have employees move from plan to plan. Others have established offshore pension arrangements for their expatriate or international employees.

Repatriation of UK Pension Fund

For the transitory worker, not having the benefit of the full ex pat package; including international pension, there are still significant advantages in making contributions to a pension plan calculated as a percentage of the workers annual income. The Australian and New Zealand Foreign Investment Fund rules allow that fund to retain its status as a Superannuation Fund. On retirement in Australasia, based on the present position, which could change, the income from the pension would be taxed in the UK at the rate applicable and then that rate would be credited against local income tax.

Pensions can be developed for individual needs and established with the assistance of fund managers present in different locations internationally. Pension Funds may be transferred from one fund manager to another, from one European country to another and in certain circumstances outside the European Union; for instance on the contributor ceasing to be resident in the country of the pension fund. Tax advantages can be made from the movements.

Stakeholder Pensions

                    Stakeholder pensions are aimed at people:

• earning between £9,000 and £18,000,
• up to the age of 75
• not part of a 'Final Salary' (defined benefit) occupational pension or group pension scheme.
  

The maximum annual contribution was £3,600 (at the time of writing this article) or the persons total annual income if lower than this.

                   The main features of Stakeholder Pensions are:

• low cost;
  
  
  • no start-up charges
    
    
  • maximum 1% annual charge proposed
    
    
• flexibility

  - no charge to transfer provider

  - possible to take a break from making contributions for up to 5 years

  - may start and stop making payments without penalty

  - they are supposed to be able to be obtained from non-traditional sources such  as employers, clubs and associations

  - traditional pensions should be able to be transferred to Stakeholder pensions after the introduction of the new scheme

Some pension providers are now offering 'Stakeholder Friendly' pensions including:-

• the option to transfer the value of the pension to a Stakeholder Pension when its introduced,

• backdate the pension to Stakeholder terms from the day the pension is started so as not to lose out by transferring to a stakeholder pension

• the ability to transfer to a new provider or company Stakeholder Scheme later on without being charged or losing any of the value of the plan

• being able to stop and start contributions.
  

See for example http://www.landg.co.uk/

Michael Reason & Partners LLP is a firm regulated by the Financial Services Authority of England and Wales.

Michael Reason is available to advise on the schemes included in this article, prepare the necessary documents and obtain the necessary Inland Revenue clearances.

Independent financial advisors advice should be sought before making an investment decision. The value of investments can fall as well as rise. Read the conditions of the pension plan. Pension funds are subject to charges for their administration which vary from provider to provider. There is a Pensions Ombudsman.

© Michael Reason LLM 2000-2004