Personal Pensions
A personal pension is one that you take out yourself, for example if you're self-employed or your employer doesn't offer a pension arrangement. They are a type of money purchase pension.
You choose the provider and make arrangements for your contributions to be paid. The provider claims tax relief at the basic rate and adds it to your fund. If you are a higher rate taxpayer, you will need to claim the additional rebate through your tax return. You also choose where you want your contributions to be invested from the range available from your provider.
How does it work?
The fund builds up using your contributions, investment returns and tax relief. It helps to think of money purchase pensions as having two stages:
Stage 1
The fund is usually invested in stocks and shares, along with other investments, with the aim of growing the fund over the years before you retire. Remember though that the value of investments may go up or down.
Stage 2
When you retire, you can take a tax-free lump sum from your fund and use the rest to secure an income - usually in the form of a lifetime annuity.
The amount of pension income you'll get will depend on:
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how much you pay into the fund;
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how much, if anything, your employer pays in;
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how well your investments have performed;
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what charges have been taken out of your fund by your pension provider;
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how much you take as a tax-free lump sum;
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annuity rates at the time you retire; and
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the type of annuity you choose.
Personal pensions at work
A personal pension may be offered through your employer.
Changing jobs
If you change jobs check whether your new employer offers a pension scheme. You can continue paying into your personal pension but you may find you'll be better off joining your employer's scheme, especially if the employer contributes. Compare the benefits available through your employer's scheme with your personal pension. If you decide to stop paying into a personal pension, you can leave the pension fund to carry on growing, but check whether there are extra charges for doing so.
"Request pension advice - call 0845 217 1577 or email info@moneyandme.co.uk".