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Personal Pensions
Pensions

Personal pension plans (PPPs) are designed for the millions of employed & self-employed individuals who do not have access to a company pension scheme.

Pensions

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 Personal Pension Plans(PPPs), though most are run by the large insurance companies and banks.

How Personal Pensions work

During your life time you or your employer can make regular or single contributions towards your personal pension plan. You can take out a personal pension from any pension provider(Pension company). Your contributions qualify for tax relieve at basic rate if you are a basic rate tax payer and higher rate relief if you are a higher rate tax payer. If you are a basic rate tax payer: Contribute £1 and into your pension will go £1.25 because of the tax relief received. It is thus a tax efficient way of saving for retirement. .

During the term of the plan all the contributions will be invested according to your preference and risk level in a range of assets. These include, cash, stocks, shares, fixed interest securities, unitised property funds and investment funds.

Unlike many company or corporate pension schemes, all personal pensions work on a 'money purchase' basis. This means that upon reaching your retirement date, you use the money that has built up in your personal pension to purchase an annuity(regular monthly payment). It is the annuity which then provides you with income in your retirement. So it follows that the value of the pension at retirement, is dependent upon:

Pensions

In other words a personal pension is just a long term savings plan (albeit a very tax efficient one) that is designed to produce a fund at retirement. This then purchases an annuity which in turn provides the retirement income. There are also additional benefits for dependants. There is also a special type of personal pension used for 'contracting out' of S2P called an 'Appropriate Personal Pension' or APP.

What you get & when you get it.

With a personal pension, you are allowed to start taking your pension at any time between the ages of 50 and 75. Furthermore, you do not have to stop work in order to start taking your pension, although you would be well advised to keep up with your contributions and delay drawing your pension for as long as possible. Though retiring at fifty might sound tempting, building up enough money to provide a decent retirement income would probably prove very difficult.

Protected rights derived from contracting-out of S2P can only be paid from the age of 60. Mention could also be made of phased retirement (encashing a set number of segments annually to provide tax-free cash and pension to suit annual requirements whilst leaving the remainder invested) and income drawdown which was introduced by the Finance Act 1995.

Tax free lump sum

You are allowed to take up to 25% of your fund at retirement as a tax-free lump sum, thereby leaving only 75% of the fund to provide your regular pension income.

If you would like one of our qualified advisors to create a free personalised illustration for you, please contact us.

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