Personal Pensions

The money you save in a Personal Pension is invested by the pension provider and should GROW

In theory saving £100 a month for 40 years (£48,000) in a Pension could give you a Pension Pot of £149,000!

BUT there is risk attached and you may get back less than you put in

Money placed in your pension WILL NOT BE TAXED, nor will any returns you see from investment

You can access the money in your pension from your 55th birthday

 

Need to know

  • How they work: Your money will be invested by your Pension Provider to help it grow. In the long term it is likely to grow substantially BUT with all investment there is a risk attached, you may get back less than you put in
  • The benefits: Any money you pay into a pension (up to the annual allowance) will get tax relief. For every £100 a standard rate tax payer earns, you lose £20 to the tax man. If you put that £80 into a pension your pension company will retrieve that £20 tax relief for you and add it to your pension 
  • How much can you save: You can save as much as you like BUT anything you save over the annual allowance of £50,000 will not get tax relief, your employer can also contribute, but it is not compulsory
  • Your interest grows too: The return from your investment are put back into your pension helping your fund grow. If you assumed you made 5% on your fund each year, then saving £100 a month for 40 years (£48,000) would give you a pension pot of £149,000
  • Who can get one: You can get a Personal Pension is you are aged 16 or older and a UK resident
  • When you can start using it: You can access your pension from the age of 55. You can choose to take up to a quarter of your saving as a tax-free lump sum. Many retirees use their pension pot to buy an Annuity which provides an income for life
  • What the other options are: If you have been paying National Insurance you will automatically get State Pension (see the box below). You may also be auto-enrolled in a workplace pension as these are introduced across the country, if this is available you may find it is a better option as your employer MUST contribute to it as well
 

Pick the right Pension

Personal Pensions have SO MANY names but there are three main types:

Standard Personal Pension: Money is paid into a pension by you and/or your employer. This is then invested by the Pension company and becomes available when you are 55.

Stakeholder Pensions: Similar to standard pensions but their charges have been capped and they cannot penalise you for not paying in or transferring. More flexible pensions but with less investment choice.

Sipps: DIY pensions where you choose where to invest.

When comparing pensions, make sure you know the following

(the information can be found on the plan’s Key Facts document, which will be online or you can request): 

  • If there is a set-up fee or if you need to pay commission
  • What charges there are, these can include an annual fee, administration fees and penalties
  • The range and types of investments available and how risky they are
  • If there is a minimum contribution, and if you can vary how much and when you pay
  • If you can take a break if you stop working without being penalised

There are lots of places you can get free advice on pensions BUT to get independent recommendations of which specific products are best for you, you can talk to an Independent Financial Advisor (IFA).

IFAs look expensive (£75-£250 an hour) BUT a pension is worth getting professional advice for. IFAs either work on a fee basis or commission. Commission is where they take a small percent of your money every month the product is held. It takes the pressure off a big up-front cost but will add up to more in the long run.

Compare Pensions


Why we like it:

  • very useful comparison table that compares pensions
  • compares charges, investment options and how you buy
  • good starting point

Watch out:

  • cannot tell you which pension is best for you

Get more advice


Why we like it:

  • FREE advice service
  • get more advice over the phone on 0300 123 1047
  • live web chat available
  • can give general advice on types of pension and the next steps to take

Watch out:

  • unable to give specific financial advice

Find an IFA


Why we like it:

  • lists FCA regulated Financial Advisors
  • Advisors are given star ratings by past customers
  • can search by area
  • can send a message to multiple IFAs at the same time
  • first meeting is often free

Watch out:

  • IFAs can charge £75-£250 an hour
  • how much they charge is not listed, you have to request the info

State Pension

A state pension is available to everyone who has paid National Insurance for 30 years or more, or has been claiming benefits for unemployment or sickness

You can top this up with voluntary payments to ensure you qualify

It is currently £115.95 per week but rises every year by at least 2.5%

Women currently need to be 62 to claim, men 65, the ages will steadily rise, those born after 6th April 1978 will need to be 68 before they can claim

You can work out how much you are currently entitled to, and how many years you have left until you can claim using the State Pension calculator

 

The inside track

  • If you stop working you can still pay into your pension and receive the tax benefit on £2,880 a year
  • If you die before you are able to take your pension the money is not lost. It will go to the beneficiaries named when you took the pension out

JARGON BUSTING!

  • Corporate bonds: When your money is lent to a company, rather than a bank, in order to earn you interest.
  • Equities/ Shares: A small part of a company you can buy so you are entitled to some of the company’s profits. Your return can go up or down.
  • Ethical investment: Investing in companies that are good for your karma (eg. not weapons)
  • Exit charge: A fee you may be charged when you cash in your shares or bonds. 
  • Fixed interest securities: When your money is lent to a government or company, interest is paid and then it is all paid back at an agreed time
  • Dividends: A payment made by a company to its shareholders/ investors
 
 

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