Stakeholders Get Stuck in the Mud ; the Government's New Pension Is Far from Being the Only Retirement Planning Solution, Says Melanie Bien
Bien, Melanie, The Independent (London, England)
Two months from now, stakeholder pensions will be unleashed on a largely unsuspecting public. For, according to research from Marks & Spencer Financial Services (M&SFS), two-thirds of adults have never heard of them.
Stakeholder schemes are to be introduced on 6 April. They are aimed at groups who have little, if any, pension provision, such as low earners, many women, part-time workers, and 18- to 34-year- olds.
"This is the Government's last chance to get the pensions message across," says Lorraine Brannan at M&SFS. "If it can't make stakeholder work, there's no hope." To raise public awareness of the new schemes, the Government is funding a pounds 6.5m television and cinema advertising campaign, featuring talking sheep dogs.
However, critics argue that pensions are not the only method of retirement planning. The Equitable Life crisis, which proved that even the most respectable insurers can get it wrong, has left many people wary of pensions. There is a growing interest in the use of alternative investments, such as individual savings accounts (ISAs) and property, for retirement planning.
"The three most important factors to consider when you plan your retirement are your current tax rate, the age you plan to retire at, and your own attitude to saving," says Gordon Maw at Virgin Direct. "Higher-rate taxpayers should need no invitation to take advantage of the tax benefits of personal pensions. For basic-rate taxpayers, pensions still have the edge unless you are looking to retire very young."
In the past, advisers were reluctant to advise clients to invest in tax-free personal equity plans (Peps), tax-exempt special savings accounts (Tessas), or the more recently introduced ISAs, instead of a pension. But the introduction of the stakeholder makes returns on ISAs and pensions comparable on a like-for-like basis for the first time. This is because CAT-standard (low cost, easy access, simple terms) ISAs and stakeholder pensions each cap charges at 1 per cent.
Much will depend on your circumstances. According to Virgin Direct, a 30-year-old male, basic-rate taxpayer is better off opting for a personal pension. If he saves pounds 1,800 a year into a pension and retires at 65, he will get an annual income of pounds 12,386. But if he invests in an ISA instead, his pot will be worth 48 per cent less, even if he doesn't touch the ISA capital. Both projections assume a 7 per cent growth rate, less 1 per cent annual charge.
If our 30-year-old is a higher-rate taxpayer, saving and reinvesting the additional tax relief, the gap appears to be even greater. His …
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Publication information: Article title: Stakeholders Get Stuck in the Mud ; the Government's New Pension Is Far from Being the Only Retirement Planning Solution, Says Melanie Bien. Contributors: Bien, Melanie - Author. Newspaper title: The Independent (London, England). Publication date: February 4, 2001. Page number: 16. © 2009 The Independent - London. Provided by ProQuest LLC. All Rights Reserved.
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