Pensions, Healthcare Cover and Life Insurance
by Paul Rylatt
Pensions, healthcare cover and life insurance - what boring subjects and especially so if you are still in your early 20's. The fact is however that the subjects become increasingly more important with age. Not only does retirement creep up on you faster than you think, but marriage and children bring these subjects to the fore.
If you are looking for a new job, it is imperative that you raise these issues as any negotiating power you may have could be lost once you accept a job. If you are just looking around for a job then why not review the existing arrangements, if any, with your current employer. You may be able to negotiate an improvement.
Large public companies still operate attractive occupational pension schemes called 'final salary' schemes, where benefits at retirement are based on your years in the scheme and your final earnings. This is generally recognised as the best type of scheme for employees but the government has introduced substantial amounts of legislation, restrictions and rules in recent times which is scaring off many of the larger employers. They now regularly give consideration to changing their arrangements to 'money purchase' where your benefits at retirement are based on premiums invested and investment growth achieved.
If your company offers an occupational pension scheme then, generally speaking, you will be well advised to join it. They may however offer a group personal pension, which is 'money purchase' but is governed by different legislation to occupational schemes. Personal pensions are very simple and are favoured by smaller employers.
If your employer does not offer any kind of pension arrangement, then you will need to set up your own personal pension but you may be able to persuade your employer to contribute to it.
Matters are complicated by the introduction of Stakeholder pensions and your employer will need to introduce a Stakeholder scheme unless he has good arrangements already in place. Stakeholder pensions are almost identical to personal pensions but the government have insisted that charges under a Stakeholder pension will be limited to 1% per annum, which is less than is generally associated with a personal pension. However, the cheapest scheme is not always the best scheme especially as investment performance is paramount. Also, you are unlikely to find an independent financial advisor who will provide advice on a Stakeholder pension without charging a fee. This is because there is no room within Stakeholder charges for the cost of advice.
If you refer to our website www.pensionspartnership.co.uk, you will find a section on how to obtain advice sheets on these subjects.
Turning to healthcare, many employers offer a scheme to employees where the employee, and perhaps their family also, can benefit from private medical care if the circumstances warrant it. However, this type of scheme is not generally offered by small employers and, therefore, you may have to make your own arrangements.
There is no doubt that, in the event of accident or emergency, the National Health Service does an excellent job. However, sometimes you have an illness or condition that requires treatment but you have to join the NHS waiting list to receive such treatment for example, varicose veins or, for a child, a tonsillectomy. In addition, many wish to have treatment in more comfortable surroundings than normally associated with the NHS and, in particular, a private room.
If the company provides this kind of cover, then HM Revenue & Customs regard the cost of the cover as a taxable benefit and a deduction is generally made in your tax coding. The Pensions Partnership has an advice sheet if you wish to request it through our website.
Finally, there is life cover. Most reasonably sized companies provide cover, some as much as four times salary - the maximum amount the HM Revenue & Customs will allow a scheme to pay out without any charge to tax. Schemes can also provide a spouse's benefit for example, 50% of current earnings but this benefit is taxed as earned income, just like salary.
If your employer offers life cover, it is important that you complete a nomination form, which does not bind the trustees but does indicate to whom you wish the benefit to go in the event of your untimely death. If your employer does not provide this cover then it is possible to take out an individual policy either as a straight-forward life policy on which there is no tax relief, or through a personal pension, (if you are not in an occupational pension scheme) where it is possible to enjoy tax relief on the premium at your highest rate.
It is also possible to provide life cover through a Stakeholder pension, although the rules in this respect are not generous i.e. only 10% of premium paid to a Stakeholder pension can be set aside for the provision of life cover.
Many companies also provide protection if you suffer an accident or serious illness which results in absence from work for a long period. For example, after six months, the scheme would continue say 75% of your earnings (including the basic State Invalidity Benefit) until you return to work or until you reach your normal retirement age if earlier. These schemes also quite often provide pension contribution cover so that contributions can be maintained to your scheme while you are ill.
Finally, although quite rare at the moment, some companies also offer a group critical illness scheme, which provides a level of cover, for example twice salary, in the event of you suffering a serious illness, such as heart attack, cancer or stroke. Such a payment is very useful although, with the improvement in medical science, there is every chance that you can return to work after one of these unfortunate events.
When moving jobs, it always pays to consult an Independent Financial Advisor to determine how your existing pension arrangements should be dealt with and how best to negotiate and organise for the future. Human nature being what it is, people usually leave these important subjects till last and often too late.
Paul Rylatt
Southern Partner of The Pensions Partnership
http://www.pensionspartnership.co.uk/
