Personal Pensions

These were originally designed for those who had no access to a Company Scheme. They are normally offered to people by Insurance companies or banks.

These contracts are very flexible and are suitable for employees or self employed or indeed non earners. The maximum that can be paid into a Personal pension is either 100% of earnings or up to £3,600 if non earner. Contributions can be paid into the pension by third parties. In each case there is tax relief. For example a parent or grand-parent could contribute into their relatives pension £2,880 and the government would make it up to £3,600.

These contracts are money purchase schemes, that is, the contributions build up over the years and depending on investment growth the pension benefits will be paid from the “pension pot” at point of retirement. The Pension pot can fluctuate in its value over the years. You can also transfer your pension from one company to another.  See leaflet which you can download

At the point of retirement there is the option to take a 25% Tax free lump sum and a lower yearly pension or a yearly pension based on the full pension pot fund.

So in effect a personal pension is a long term saving vehicle with the advantage of a very tax efficient environment.

The Government has introduced major changes to the Pensions Bill of 2006 and in 2012 they are implementing the National Employment Saving Trust.  This is to try and ensure that more people are in prepared fro their retirement years.  See Document on NEST for more information.

At Retirement, each person has the option of receiving their pension from the company they saved with or they can go to another company if the pension is greater. This is called the open market option. See more on Annuities for further information.

To see how large your pension pot might be see calculator