Money: Where saving is once and for all
Single-premium pensions make sense, says Harvey Jones
Sunday 14 March 1999
To get the tax break you have to buy a "single premium" plan. This is a flexible and increasingly popular alternative to a monthly premium pension. These policies have particular advantages for the self-employed, those with irregular income or people who receive an annual bonus, says Andrew Bedford, marketing director of Financial Options Group, a network of independent financial advice firms.
"If you earn pounds 20,000 most years but sometimes earn pounds 50,000, you may wish to pay a one-off extra contribution," he says. "This will allow you to increase your overall pension pot and make sure you are using as much of your available tax relief as possible."
The Inland Revenue allows tax relief on personal pension contributions at your highest tax rate, whether you pay a lump sum or regular premium. If your limit has not been reached, you can contribute up to a set percentage of your net relevant earnings. This limit is 17.5 per cent for people under 35 and rises to a maximum of 40 per cent. If you have the money, you can pay above that and still get tax relief by claiming any unused relief from up to six years ago, providing you do not pay in more than the equivalent of your annual income.
Mr Bedford says: "A problem is that if money is tight one year, you might be tempted to skip a payment. Monthly payments are less hassle and it feels less painful paying pounds 200 a month than pounds 2,400 a year."
On the other hand, Adam Norris, managing director at Hargreaves Lansdown Pensions Direct, says single premium pension plans have the benefit of being cheaper. "The average single premium is around pounds 3,000. This payment is cheaper to administer than a monthly contribution of pounds 50, so you save money," he says.
And unlike many regular premium plans, single premium pensions are not hit by the "front-end loading" of financial advisers' commission (see jargon-busting box). These charges can wipe out huge chunks of your pension contributions in the early years, hitting performance all down the line.
Pension company charges and IFAs' commission (which alone costs between 5 to 8 per cent of your contributions) have drawn much criticism. The commission element can be saved by purchasing your pension through a discount house.
Hargreaves Lansdown rebates 80 per cent of the initial commission paid to IFAs if you buy without advice (on an "execution-only" basis). This discount could put an extra pounds 100 or more into your pension on a lump sum of pounds 1,000, compared to going through a fee-based IFA. TQ Direct Choice offers a similar service.
Hargreaves Lansdown recommends five pensions houses. They are: CGU, Royal & SunAlliance, Scottish Widows, Skandia and Standard Life.
Mark Birks, pensions marketing manager with Royal & SunAlliance, says single premium plans are enjoying a surge in popularity for several reasons. One is the fear that Labour will reduce the tax relief available on premiums for higher rate payers, so people are using up the allowances just in case. The uncertain labour market and growth in short-term contract working has also dissuaded many from making regular pension commitments and only paying in when they know they have the cash.
Discount pensions: Hargreaves Lansdown, 0117-980 9926; TQ Direct Choice, 0800 413186. Providers: CGU, 0500 100200; Royal & Sun Alliance, 0800 300880; Scottish Widows, 0345 697567; Skandia, 01703 334411; Standard Life, 0845 6060100.
- 1 Nigel Farage: Me vs Russell Brand on Question Time – he's got the chest hair but where are his ideas?
- 2 Harry Potter fans can apply to the Hogwarts-inspired College of Wizardry
- 3 Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
- 4 Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
- 5 Orange Wednesdays are no more
Weather bomb in pictures: Storms cuts power for tens of thousands – and snow is on the way
Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
Russell Brand was rendered speechless on Question Time by this man
Fury at Airbus after it hints the super-jumbo may be mothballed
Disgruntled RBS worker writes hilarious open letter to Russell Brand after anti-capitalist publicity stunt leaves him hungry
Nigel Farage defends Kerry Smith 'ch***y' comment: 'If you are going for a Chinese, what do you say you’re going for?'
Nigel Farage's approval rating hits 'record low' as popularity suffers in wake of Ukip sex scandal
Pakistan school attack live: Taliban kill at least 132 children in 'horrifying' massacre
Sony hack: Angelina Jolie branded 'seriously out of her mind' in further embarrassing leaked email saga
Panic Saturday: 13 million Britons spend £1.2bn – while 13 million others across the country live in poverty unable to afford food
iJobs Money & Business
£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...
£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...
£20000 - £25000 per annum + OTE £35000: SThree: SThree are a global FTSE 250 b...
£20000 - £25000 per annum + OTE £35K - £45K: SThree: SThree Group have been we...