Personal pensions are a flexible way to build up retirement income benefits, while benefiting from tax advantages, whether you’re employed, self-employed or not working
Private Pensions are for many, the number one choice for investing in securing the future, but once again research and reliable advice are two extremely important factors to ensure that the correct product is taken.
They can provide access at this time from age 55 and any contributions made up until this point will provide additional income to enable clients to retire more comfortably than without any private pension provisions.
How personal pensions work
Personal pensions are a type of defined contribution pension scheme. They are individual contracts between you and the pension provider and are set up by you, the member. The pension provider is often an insurance company, although there are also a number of independent providers.
You can hold a personal pension if you’re employed, self-employed or not working. If you’re employed, your employer can also contribute to your personal pension.
Other people are also able to contribute, and you can contribute to other people’s personal pensions. For example, you could contribute to your spouse’s or partners personal pension, or even to a child’s personal pension to allow them to start building up retirement benefits from an early age.
Since 2006, there has been no restriction on the number of different pension schemes that you can belong to, although there are limits on the total amounts that can be contributed across all schemes each year, if you’re to receive tax relief on contributions. This means you can have a personal pension to provide additional retirement benefits, even if you’re a member of a workplace pension scheme.
Personal pensions are money purchase schemes. The value of your retirement benefits are determined by the amount of contributions that have been made, the period that each contribution has been invested, investment growth over this period and the level of charges.
Under current legislation, you can commence drawing retirement benefits from the age of 55. You don’t have to stop work to draw benefits. Up to 25% of your accumulated fund can be withdrawn as a tax-free cash lump sum with the balance used to provide an income.
Pensions in payment are taxed as income, but you do not pay National Insurance contributions on pension income.