If you’re looking out for the right investment plan so that you can make the most out of your money and enjoy a good life in your last years, then you are probably already bewildered by the array of options there are to choose from. Here are some of the pros and cons of simple stakeholder pension schemes and the more complex Self Invested Personal Pensions (SIPPs), to help you work out which is right for you.
Introduced in 2001 as a simple pension option with a basic set of government standards, stakeholder pensions are cheap and accessible for people on lower incomes. The money can be drawn from the age of 55 onwards with a tax-free lump sum of up to 25% taken away ad the rest used to buy an annuity. Anyone under 75 years of age can pay into a stakeholder pension and you can put in as much as £3,600 each year. Among the benefits you stand to gain are tax relief on your contributions, set at 20p in the pound for basic rate and non-taxpayers, which is collected and added to your savings by your pension company.
Money can be paid in by someone else on your behalf, making it great for parents or grandparents to save for their children or grandchildren. It is a simple option for investors who may feel less confident about choosing funds to invest in, and comes with low charges for stakeholders. However you should also bear in mind that you will not have much freedom when it comes to what you invest in with a stakeholder pension, as they generally include only low risk investments meaning your potential returns are likely to be lower than those included in other personal pension plans. Stakeholder pensions are ultimately best for inexperienced investors who want to avoid having to make tough decisions about where to put their money, and those who want to keep their monthly contributions low.
A good option for those who already have investment ISA’s and for those who pay a higher rate of income tax, SIPPs provide greater flexibility, but they do put the responsibility of picking the right funds on your shoulders. If you take this option you will be able to invest in just about anything from commercial property to gold bullion. If you are prepared to do the work then you stand to make good returns from the risks you take. However you will have to make higher contributions than with other plans and you’ll face higher charges. Low-cost SIPPs are typically good for many pension savers who are happy to do the work on where to invest, but in general these are best suited to confident investors who are eager to invest more time and money. You can find these and more available from firms like Killik & Co who will also offer more advice on what is the right option for you.