Financial Services > Pensions > Self Administered

 


This is a type of company pension scheme reserved for directors and their families because the risks involved can be quite high. People who choose this type of pension want more control over the things that their pension fund is invested in and so they play an active part in managing their own portfolio.


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An independent trustee is appointed to make sure that all investments and withdrawals remain within the limit imposed by the government - and as a further safeguard, all assets have to be registered in the joint names of all trustees, including the independent trustee.

There are no guarantees with this type of pension, and when the member reaches retirement they have choices to make.

Like any form of Personal Pension, if you die before claiming the benefits (and before age 75) the entire value of your pension fund can be paid to any person or people that you choose as a tax-free lump sum, subject to a maximum which varies between £1 million and £1.8 million according to your personal circumstances. Beyond that point the payment would be taxed at 55%. An often overlooked fact is that if you had a £2.5 million pension fund the first 
£1 million could be paid out as a tax-free lump sum and the rest used to buy a lifetime income for your surviving dependants. 

If you have started to claim the benefits through Drawdown Pension then your spouse, registered civil partner or other financial dependant can continue to draw an income from your pension rights for the remainder of their life. Similarly a pension could also be paid to your children while they are in full time education. After this any money left in your pension scheme will be taxed at 55%.

For complete security it is possible to take the money from the pension fund and purchase an annuity, which is simply a guaranteed income for life. A smaller income can be taken in exchange for a lump sum payment which is currently tax-free and you can design the annuity in a variety of ways to suit your personal needs. For example, there could be an income for someone else who survives you for the remainder of their life, a minimum payment period or even some provision to offset the effects of inflation each year, and better rates are available if you have impaired health when making your claim.

In exchange for the guarantee that comes with an annuity, the entire pension fund is given away to an insurance company and so there is nothing left for your friends and family when the income payments stop.

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If you are happy to leave your pension fund invested beyond your retirement date, you can withdraw an income from the pension fund itself under a system known as a Drawdown Pension.

It is important to bear in mind that if you set the withdrawal at a high level, your investments will need to grow at a correspondingly rapid rate simply to maintain the value of your pension fund - and therefore the income available to you in the future. To obtain a rapid rate of growth you will need to take a higher degree of risk and this is not an option which is suitable for everyone.     

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You are free to move into an annuity at any stage in the future, and there is also the option to take a retirement lump sum too. But if you leave the pension fund invested, then the entire pension fund will be available for your survivor to have an income during the remainder of their life.