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Financial > Pensions > Self Administered
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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 a choice to make.
Like any form of Personal Pension, if you die before claiming any benefits the entire value of the policy can be paid out tax-free to any person or people of your choosing as a lump sum. It is important that you say who those beneficiaries should be to make certain that your pension fund does not go into your Estate, at which point it would be subject to Inheritance Tax.
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 an Alternatively Secured Pension. The level of income allowed by the government is usually higher than the best annuity rates within the open market, and you are obliged to review the level of those withdrawals at least once every 5 years.
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, or they could take 65% of the remaining fund as a lump sum up until your 75th birthday. The other 35% is kept by HMR&C in lieu of Inheritance Tax.
When you reach the age of 75 the government discriminates against you. From that point onwards the lump sum that can be claimed after either your death or that of your surviving spouse or registered civil partner falls to just 18% and the remaining 82% of the fund is kept by HMR&C in lieu of Inheritance Tax.
You will not be surprised to read that this discrimination is the subject of legal action at The European Court of Human Rights, but it is important to put things into perspective. In the bad old days you could only buy an annuity and when you and your spouse or registered civil partner died the insurance company kept whatever was left. Our government then took Corporation Tax from the proceeds and your family got nothing so the less than ideal current situation is a great improvement.
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