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Charge of the pension brigade

The self-employed are set to face several new problems with the onset of stakeholder pensions.

Currently, the self-employed make gross pension contributions and tax relief is obtained from the Inland Revenue. Under the new defined contribution scheme rules that come into effect on April 6, contributions – including those to stakeholder pensions – will be made net of basic rate tax.

So those now making a monthly contribution of £100 and claiming back the 22 per cent tax relief, will make an equivalent net contribution from April 6, of £78.

Stuart Ranson, divisional director at IFA firm Heath Lambert Financial Services says: “I think this is a good thing for the self-employed. IFAs could suggest that their self-employed clients stick to the same contribution level, say £100 a month, because they are used to paying it.

“From April 6, they will be paying an extra £22 a month into their pension pot. This might cause them a small cash flow problem, but the benefits in building the fund quicker would probably outweigh this.”

The other snag for the self-employed following the change from gross to net contributions relates to changing the level of payment. Most payments are made by direct debit, so IFAs should contact their clients to ask them to amend their payments direct.

The self-employed might also face an uphill struggle when it comes to finding out about stakeholder. According to research conducted by Royal & Sun Alliance, around two-thirds of the self-employed still do not have a pension and there is nothing in the stakeholder legislation to give them the incentive to take one out.

Promotions leader at the Royal & Sun Alliance Andy Milburn says: “The biggest problem for the self-employed is finding out what their pension options are. Many one-man operations work from home, so they cannot benefit from worksite marketing in finding out about stakeholders or other pension options.”

Milburn suggests product providers should also consider using digital TV as a means to target the self-employed, using the internet facilities offered by many cable channels.

With less than two months before the introduction of stakeholder pensions, Opra now lists 28 approved stakeholder plans. These plans are from Abbey National Life, Axa Sun Life, B&CE Easybuild, Bank of Scotland, Barclays, Britannic, CIS, Clerical Medical, Friends Provident, HSBC, Legal & General, Marks & Spencer financial Services, NatWest Life, Norwich Union, NPI, Pearl Assurance, Prudential, Royal & Sun Alliance, Royal Liver, Royal Scottish Assurance, Schroder Pensions, Scottish Amicable, Scottish Equitable, Scottish Life, Scottish Mutual, Scottish Widows, Standard Life and Virgin Direct. They are all designed for individuals and groups.


Stewart Ritchie – Pensions Development Director Scottish Equitable

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