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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 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 of £1.5 million (£1.8 million in limited circumstances). Beyond that point the payment would be taxed at 55%.
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. The level of income allowed by the Government is broadly the same as annuity rates within the open market for a pension that does not increase and is only payable to you. You are obliged to review the level of those withdrawals at least once every 3 years up to age 75 and annually thereafter. Sadly the limit does not go up any further after age 85 because the Government has not provided the statistics required to do so.
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.
There is some great news though. If you take a 'scheme pension' or an annuity to increase your guaranteed income for life to £20,000 or more (this includes your state pension and any other pensions or annuities that you receive) you can withdraw as much money as you want under the Drawdown arrangement.
This makes a lot of sense because you can withdraw enough to take your total taxable income up to £150,000 in the current tax year and only pay income tax at 40%. Because this is all 'extra' income you can give it away for Inheritance Tax purposes without affecting the usual limits on such gifts. For example you could put money into collective investments through a discretionary trust fund that benefited not only your children but also the person you are living with and they could do the same thing in reverse for you. That will mean no Inheritance Tax on the investments within that trust at any point and complete freedom for your family unit to enjoy all of the benefits of your pension scheme at whatever pace is appropriate for you. Whilst you can not extinguish your pension completely (because there will need to be enough money there to pay the 'scheme pension') you can get very close.
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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.
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