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Pensions and retirement planning
Understanding personal pensions
Personal pensions (also known as private pensions) provide you with a regular income in your retirement. Find out about the tax implications of a personal pension and get information to help you decide whether a personal pension is suitable for you.
What is a personal pension?
With a personal pension you pay a regular amount, usually every month, or a lump sum to the pension provider who will invest it on your behalf. The fund is usually run by financial organisations such as building societies, banks, insurance companies or unit trusts.
Would a personal pension be good for you?
Your decision will largely depend on how much you can afford to save for your pension and how much you will get from other pensions.
Personal pensions may be suitable for:
- people who are self-employed
- people who are not working but can afford to pay for a pension
- employees whose employer does not offer a company pension scheme
- employees who have the option to pay into a company pension, but choose not to
- employees on a moderate income who wish to top up the money they would get from a company pension
A personal pension may not be the best choice if:
- your employer offers a company pension scheme
- your employer offers access to a stakeholder pension scheme, with an employer contribution
Paying your personal pension
Other people can pay into a personal pension on your behalf. This means that partners or other family members can help you save for your retirement.
If you have moderate earnings and think you might need to stop and start payments, or vary the amount, you might want to consider a stakeholder pension. A stakeholder pension is a flexible type of personal pension.
Working out the value of your other pensions
The amount of basic State Pension you get depends on the National Insurance contributions you paid, are treated as having paid or are credited with throughout your working life.
The amount of additional State Pension you receive is based on your earnings and National Insurance contributions as an employee. You can't build up entitlement to the additional State Pension when you are self-employed.
If you have a company pension your employer should be able to tell you how much you are likely to get.
Other factors to consider before getting a personal pension
Remember that choosing a personal pension scheme is an important financial decision and there are many things to consider:
- what are the rules on making contributions?
- how much can you save and is the pension scheme ‘contracted out’ of the additional State Pension?
- how will the money be invested?
- how much does the pension provider charge you for setting up your pension and for administration?
How much pension you can get
You will receive a yearly forecast from your pension service provider. This will tell you how much:
- your fund is worth
- you can expect to receive if you continue to contribute at your current level
The final value of your pension fund will depend mainly on how much has been paid in and how well the fund's investments have performed. The companies that run these pensions charge you for starting up and running your pension. Charges are normally deducted from your fund.
Any questions about your personal pension should be directed towards your pension service provider.
When can you take your personal pension?
The earliest age you can take your personal pension is 50. After April 2010, this will rise to 55.
Most people choose to wait until they are 60 or 65, but you do not have to retire from work to get your pension benefits. You can also put off taking your pension until you are 75.
After April 2010, there will be certain circumstances that you will allow you to take your pension before you are 55. Your pension scheme provider will be able to tell you what your scheme allows.
Getting financial advice about personal pensions
If you are unsure if a personal pension is right for you, get expert advice from the Pensions Advisory Service or a financial adviser before making a decision. A financial or pensions adviser will also help you decide which particular personal pension is suitable for you.
Tax and your personal pension
Work out the final value of your personal pension, as well as the various tax implications when you contribute to your pension and when you claim your money.
More useful links
Find out more about personal pension plans and planning for retirement.
