What is a Personal Pension?
Personal pensions are offered by insurance and investment companies and other authorised providers. They are individual plans, available to almost everyone and not linked to an employer; control rests with the planholder. Contributions from the holder and their employer, where applicable, are invested on the holder’s behalf and the accumulated fund is used to provide an income on retirement. No income or capital gains tax is deducted within the fund, although the fund manager cannot reclaim tax credits on dividends.
Personal pensions are available to anyone who is eligible to contribute to a pension scheme, including members of occupational pension schemes, subject to the overall contribution limits and fund values described earlier. There are several bases in which a personal pension can be set up.
The first basis a personal pension can be set up is a with-profits. Similar in many ways to the with-profits life policies we considered earlier, premiums are invested in the firm’s with-profits fund. Assuming premiums are paid as required, a minimum maturity value is guaranteed and bonuses are added each year, assuming profits are sufficient. Many firms offer the unitised with-profits option. The accumulated fund at retirement is used to provide an annuity. Charges on the plan will be taken in the same way as a with-profits endowment.
The second basis is a unit-linked. The plan holder’s premiums are invested in their chosen fund from a range offered by the provider. On retirement, the accumulated fund can be used to buy an annuity or transferred to an income withdrawal plan to allow flexibility. Charges will be similar to those applied to a unit-linked life policy.
The Third bases a personal pension can be set up is a deposit account, rather than investing in a with-profits or unit-linked fund, the planholder invests the premiums in a building society linked account. While this will ensure no money is lost, growth is unlikely to be sufficient over the longer term when compared to asset-backed media. Charges are likely to be lower than with-profits or unit-linked plans.
Its recommend that you keep track of your pensions, if you are unsure on how many personal pensions you have or how much you have invested you should find out. The key to creating a sufficient retirement provisions is planning in advance, the longer you wait the harder it can be to achieve financial security into retirement, however, it’s never too late to improve your retirement provisions, don’t wait any longer, talk to an adviser today.