Personal Pension - Plan your Retirement


What is a Personal Pension?

A personal pension is a tax efficient way of saving for your retirement. When you retire or reach a certain age (55 or older) teh pot of money that you have saved in your personal pension plan becomes available to provide a taxable income until you die. The advantage of pensions saving in this way over otehr saving is that you get tax relief on the contributions you make into your pension plan. The amount of tax relief will depend on your tax status and prevailing tax rules. The amount of income you can take from your personal pension when you retire will depend on a number of factors including the value of your pension pot when you retire.


What is the difference between a Personal Pension and a Stakeholder Pension?

Personal pension plans tend to have higher minimum contribution levels e.g. £100 pm, as well as higher charges. Personal pensions will generally have more flexibility when it comes to what you can invest in while stakeholder pensions are low cost but have less investment choices.


How does tax relief work with contributions made into a Personal Pension Plan?

If you are a basic rate tax payer a payment of £80 per month will be topped up by HMRC with an additional payment of £20 (basic rate tax relief). this means that £100 is invested every month into your prension pot. For higher rate tax payers through the self assessment tax return you can claim back an additional 20% i.e. in this example £20. For those earning over £150,000 an additional rate of tax can be reclaimed.


What benefits are available from a Personal Pension when I retire?

Benefits from a personal pension can be taken any time from age 55 onwards. From the pot of money that you have saved a tax free sum of 25% can normally be taken. The balance of money will be used to by a compulsory purchase annuity. Annuity rates depend on prevailing gilt yields but will also be determined by age, your gender and the type of annuity you take out.


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In setting up a personal pension you should look for the following features:

  • Low charges - many so called  stakeholder pension plans have no set up charges and no penalties for transferring in or out
  • Some providers now provide online access so you can manage your pension at your discretion.
  • Ability to switch investment funds
  • Flexibility to stop and start contributions as & when circumstances dictate.


The amount you can expect from your personal pension fund on retirement will depend on a number of factors including the amount you pay in & the performance of the investment funds.