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Personal Pensions

The value of pensions and investments and the income they produce can fall as well as rise. You may get back less than you invested.

Tax treatment varies according to individual circumstances and is subject to change.

The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.

Tax treatment varies according to individual circumstances and is subject to change.

Personal Pension Plans (PPPs) were originally designed for the millions of employed & self-employed individuals who did not have access to a company pension scheme.

Introduced in July 1988, they were part of a government push to extend pension choice & encourage those people not in company schemes to build up a retirement fund; one that could cater for their retirement needs more realistically than the state. Many financial institutions offer PPPs, though most are run by the large insurance companies and banks.

With recent changes in legislation, they are now much more flexible and are for the majority of people are the most tax efficient method for saving for your retirement, unless you are lucky enough to be in a defined benefit (final salary) pension scheme.

If you are in a company pension scheme that isn’t final salary based then it is likely you are in a form of personal pension arrangement as with the changes to company pension legislation (auto enrolment) and the principle that your pension pot can follow you from employer to employer (pot follows member), the majority of us are now subject to the personal pension rules for our retirement income.

Personal Pensions are very flexible and provide tax relief on your contributions of up to 100% of your earnings subject to a maximum of £40,000 per annum which is the current annual allowance. You can contribute to a personal pension if you have no earnings for up to £2,880 per annum, topped up by the government with tax relief of 20% to £3,600. Furthermore these plans can be set up for non-working spouses and even children and grandchildren.

How they work

All personal pensions work on a defined contribution ‘money purchase’ basis. This means that the money you save each month or each year into your Personal pension plan is invested (typically in investment funds) and is then used at retirement to provide you with pension benefits. So in theory the more you save the better your pension should be at retirement.

At Retirement

On reaching retirement, you use the money that has built up in your personal pension either as cash (up to 25% of which is normally tax free), income or a combination of cash and income (see New Rules About Pensions).

A personal pension is really just a long term savings plan (albeit a very tax efficient one) that is designed to provide you with savings at retirement. The value of these pension savings will be dependent upon how much money you've paid in, how long you have had your money invested and how well the fund has performed.

At retirement, provision can be made to protect your pension from the effects of inflation, protect your income in the event of your death, and make provision for your spouse or dependants (see the Annuities page). Benefits can be drawn from age 55 onwards.

If you are interested in setting up a personal pension please call us or see the section Setting up a personal pension. We can research the whole market on your behalf to find a suitable pension plan for you.


Also see

Setting up a Personal Pension Small self-administered scheme (SSAS)

How to invest your Pension Savings Self-Invested Personal Pension (SIPP)