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Frequently asked questions

Answers to common questions from pension scheme members. Please click on the questions to reveal the answers.

• How much can I pay into my pension scheme?
• Do I get any tax relief on my pension contributions?
• Can I get a full list of investment funds offered by my pension scheme?
• Can I hold other pensions besides my company pension?
• Can I change my choice of investment funds?
• Do you offer with-profits funds?
• What is the difference between actively managed and index tracking funds?
• What is a total return fund?
• What is a defined contribution/money purchase pension scheme?
• What is a final salary pension?
• What is a stakeholder pension?
• When can I retire?
• Can I take some of my pension as a lump sum?
• What is an annuity?
• Are there alternatives to buying an annuity at age 75?
• Does J.P. Morgan Asset Management sell annuities?
• What is income drawdown?

How much can I pay into my pension scheme?

You and your employer can contribute a total amount equivalent to up to 100% of your earnings into your pension, up to a maximum of £235,000 (in 2008/09). Any amount above this will not receive tax relief. The annual limit is planned to rise each year until it reaches £255,000 in 2010/11. It will then be reviewed every five years. The value of all your pensions is also subject to an overall ‘lifetime allowance’. This means the value of all your formal pensions should not exceed £1.65 million (in 2008/09). Any amount over this will be subject to additional tax. This lifetime allowance is set to rise to £1.8 million by 2010/11.

Do I get any tax relief on my pension contributions?

Yes, any contributions you pay to your company pension scheme are paid before tax. This means you will automatically receive tax relief at your highest rate. So if you are a basic-rate (20%) taxpayer, every £1 contribution you pay effectively costs only 80p in after-tax income. And for higher rate (40%) taxpayers every £1 paid in only requires 60p in after-tax income.

Can I get a full list of investment funds offered by my pension scheme?

Yes - contact your pension scheme administrator. Pension schemes often introduce new investment choices, so check regularly what opportunities are available to you.

Can I hold other pensions besides my company pension?

Yes. Under rules introduced in 2006, you can now contribute to as many pensions as you wish - including both company and personal pensions. The only rule is that your total contributions must not exceed 100% of earnings or £235,000 (in 2008/09), whichever is the lower amount. Plus if total value of your pension funds must exceeds the lifetime allowance (£1.65 million in 2008/09) the excess will be subject to additional tax when you start to take benefits.

Can I change my choice of investment funds?

Yes. Your company pension scheme should allow you to alter your choice of investment funds. You should be able to stop and start contributing to funds and switch from one fund to another. Check with your scheme administrator if switching charges apply.

Do you offer with-profits funds?

No, J.P. Morgan Asset Management do not offer with-profit investments. With-profit funds are a specialist type of investment fund offered by life insurance companies which look to smooth out investment volatility by paying out investment growth in the form of annual bonuses which, once paid out, cannot be taken away. However, the level of bonus paid is completely at the discretion of the insurance company. All of the JPM Life Funds are unit-linked and simply follow the value of their underlying investment portfolio.

What is the difference between actively managed and index tracking funds?

Actively managed funds aim to outperform their index or benchmark, whereas index-tracking funds aim to perform in line with a designated index or benchmark. All funds managed by J.P. Morgan Asset Management are actively managed.

What is a total return fund?

A total return fund is an investment fund that aims to produce positive returns in all market conditions, even when stock markets are falling. It does this by investing in different asset classes - such as shares ('equities'), bonds and cash. When shares are falling in value, a total return fund can move to bonds and cash to protect returns, moving back into shares when they start to look attractive again. Total return funds can help to guard against market falls. However they may restrict how much of their portfolio they can invest in shares. At times, they may therefore underperform funds that are fully invested in shares

What is a defined contribution/money purchase pension scheme?

It is a type of pension scheme that gives you your own pension account. Your pension income at retirement will be based on:

• the contributions you and your employer have paid into your account
• the investment returns of those contributions
• the length of time invested
• and the level of income you are able to achieve with your pension fund when you retire.

What is a final salary pension?

It is a type of pension scheme that pays a pension on retirement, based on the number of years an employee has belonged to the company scheme and their level of salary at or near retirement. The maximum pension income this kind of pension can normally provide is two-thirds of final salary.

What is a stakeholder pension?

A stakeholder pension is a new type of pension scheme introduced by the Government as a way of encouraging more private pension provision in the UK. To be classed as a stakeholder pension, a scheme must meet certain requirements on charges, minimum contributions and flexibility on switching between plans.

When can I retire?

With the exception of early retirement due to ill health, the earliest you can normally retire from a company pension scheme is age 50 and this will be at the discretion of the trustees of your scheme. Consult your pension scheme administrators for more details. From April 2010, the minimum age will rise to 55.

Can I take some of my pension as a lump sum?

Yes. You can usually take up to 25% of your accrued pension fund as a tax-free lump sum. The rest has to be used to generate a retirement income.

What is an annuity?

An annuity is a means of converting your pension pot into a regular retirement income. You hand over a lump sum from your pension fund to an insurance company and in return they agree to pay you an income for the rest of your life.

Annuities can come in many forms and it is advisable to shop around on the open market to find the best deal with the features that are most appropriate for you (eg a spouse’s income, inflation-linked income or an investment-linked income).

Under current rules, 75% of your pension must be used to buy an annuity by age 75.

Are there alternatives to buying an annuity at age 75?

The government has introduced an alternative to using your pension fund to purchase an annuity income. However, the ‘alternative secured pension’ is only intended for people who have proven religious objections to annuity purchase. The government still intends that the vast majority of people should use their pension fund to buy an annuity-based income by age 75 at the latest.

Does J.P. Morgan Asset Management sell annuities?

J.P. Morgan Asset Management is not an annuity provider. At retirement you will therefore have the freedom to shop around for the best deal when buying your pension.

What is income drawdown?

Income drawdown is a scheme that allows you to postpone buying an annuity when you retire. Under income drawdown, you can take an income from your pension fund (within specified limits) but your fund can remain invested so it can - potentially – continue to grow in value.

Under current rules, you can only remain in an income drawdown scheme until age 75 – at which point an annuity must be purchased.