Executive Pension

The Skandia Executive Pension is a simple, flexible, tax-efficient unit-linked plan that an employer can set up for directors, executives and employees to help them save for their future. Each member builds up a fund which is then used to provide them with pension benefits at their selected pension age. Normally 25% of the fund can be taken as a tax-free cash sum.

Who can take out an Executive Pension?

The pension must be set up by an employer.

To be eligible you must normally be a director, executive or employee of an employer in the UK or with a subsidiary in the UK.

Minimum and maximum ages

The minimum age is 18 and the maximum is 73 years.

Minimum contributions

£200 monthly (£5 top-up)
£2,000 yearly (£50 top-up)
Single £5,000 (£500 top-up or transfer)

Maximum contributions

The maximum personal contribution that individual members can make in any tax year cannot exceed 100% of their earnings from that employment.

Employer contributions are unlimited, although they will only receive tax relief on them if the local tax inspector deems them reasonable.

The Annual Allowance is the maximum amount that you can accrue in all registered pension schemes before you become liable for tax. If your earnings are greater than the Annual Allowance you may still contribute 100% of your earnings and receive full tax relief; however, any contributions exceeding the Annual Allowance will be subject to a tax charge.

The Annual Allowance has been set for the tax years shown as follows:

2008/09 – £235,000
2009/10 – £245,000
2010/11 – £255,000

If the total amount accrued in all of your registered pension schemes exceeds the Annual Allowance you will be personally liable to a tax charge of 40% on the excess amount.

Your financial adviser will be able to provide you with more information.

Term

The minimum term is two years.

All payments into the plan must cease by age 75, or earlier if you cease to be employed by the employer.

Benefits must be taken by age 75.

Advantages for the employee

Tax efficiency

There are a number of reasons why an executive pension can be a tax-efficient way of saving. These include:

• Your employer will deduct any personal contributions from your gross salary before applying your PAYE coding so that you get immediate tax relief.
• Normally 25% of your fund can be taken as a tax-free cash sum on drawing benefits.
• The funds you invest in are free from capital gains tax and generally free from income tax. With less tax paid, more goes towards the growth of your fund.

There may be a tax liability in some circumstances, for example where:

• Contributions into your plan are funded from a tax-free cash sum received from a registered pension scheme.
• The total amount accrued in all of your registered pension schemes exceeds an amount known as the Annual Allowance (see maximum contributions for more details).
• The total value of all your pension benefits exceeds the Lifetime Allowance when you start to draw benefits. For the 2008/09 tax year this is £1.65 million and it is set to rise in stages to £1.8 million by 2010/11.

Your financial adviser will be able to explain this to you in more detail if you think this applies to you.

Flexibility

The plan can accept regular and single contributions. Once you have become a member you can also transfer in any benefits you hold in other UK-registered pension schemes and overseas schemes approved by Skandia. If a transfer payment includes Protected Rights, Safeguarded Rights or non-Safeguarded Rights, these cannot be held under the Executive Pension but can be invested in a Personal Pension.

Regular contributions can be stopped, reduced or increased at any time without incurring extra costs or penalties. Previous contract ranges may incur penalties. If your employment status changes, you can easily switch to another Skandia pension product.

If you change employers, you can continue using your Skandia Executive Pension. Your new employer can set up a scheme with us, so you don’t have to set up a new pension for yourself.

Loyalty bonus

Certain plans attract a loyalty bonus. These plans receive extra bonus units every five years based on all lump sum contributions. Once awarded, bonus units cannot be lost.

Flexible benefit options

Normally 25% of your fund value used to provide benefits can be taken as a tax-free cash sum. With the remainder of the fund you can either choose to take income withdrawal on your fund (subject to a minimum fund size) or purchase a lifetime annuity from the provider of your choice, using our free of charge Open Market Option.

Inflation-proof

Options exist which allow you to increase your contributions each year to keep pace with inflation.

Minimum death benefit

We will pay out 100% of your fund value on your death before drawing benefits. This is paid at the discretion of the Trustee, who is Skandia Life (Pensions Trustee) Limited, so you should tell them who you would like to receive the benefits. Benefits are normally paid free from inheritance tax.

Advantages for the employer

Skandia Master Trust No. 1

Skandia Life (Pensions Trustee) Limited is appointed as Trustee and Administrator of your Executive Pension scheme, freeing you from the complex administration.

The Executive Pension will be set up under the Master Trust No. 1. This offers many advantages, including:

• the ability to offer a pension registration service at no charge

• simplified paperwork on establishment of the scheme

• rapid HM Revenue & Customs registration of the scheme and continued maintenance of status.

Investment services

To give you more control over your investments, we offer Phased Investment and Portfolio Rebalancing free of charge.

Phased Investment helps you when market conditions are uncertain as it allows you to drip-feed lump sum payments into your selected funds.

Portfolio Rebalancing enables you to keep your portfolio invested in the proportions you want by periodically realigning your funds back into their original proportions.

Further details about these services are available on request through your financial adviser.

Risks

You need to be aware that there are risks involved in taking out an Executive Pension Plan and we cannot guarantee the value of your pension fund and resulting benefits for a number of reasons. Some of these are detailed below:

• The value of your pension fund cannot be guaranteed as it will depend on investment performance.

• The value of fund units can go down as well as up and investment growth cannot be guaranteed.

• Tax rules can change at any time, which may affect your pension.

• The level of pension benefits payable cannot be guaranteed as it will depend on interest rates when you start taking your benefits.

• The value of your pension fund may be less than expected if you stop or reduce contributions, or if you take your pension benefits earlier than you had planned.

• If the Executive Pension Scheme starts with a single contribution and your employer cancels the scheme within 30 days, the amount returned may be less than was paid in.

This web page is only intended as a general introduction to the Skandia Executive Pension. Full details of the product can be found in the Skandia Executive Pension Member’s Guide, available from your financial adviser.

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