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Personal pensions

A personal pension is a long-term investment that aims to help you build up a pot of money that you can use to produce an income when you retire.

It’s a tax efficient way for you to invest for your retirement because HM Revenue & Customs (HMRC) adds tax relief to the payments you make into your plan.

For example, if basic rate tax is 20% and you make a payment of £160, the taxman will add £40 so the total invested into your plan is £200. This is known as basic rate tax relief.

If you are a higher or additional rate tax payer you will be eligible for additional tax relief.

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

As well as making your own contributions other people, such as your Employer a family member can pay into a personal pension on your behalf.

The earliest age you can take your personal pension is 55; although this is rising and from 2028 will be set at 10-years below the State Retirement Age.

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 now put off taking your pension beyond the age 75.

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?
  • How will the money be invested?
  • How much does the pension provider charge you for setting up your pension and for administration?
  • What is the projected pension income?

The final value of your pension fund will depend mainly on how much has been paid in, how much you have been charged and how well the fund’s investments have performed.