Personal Pensions

Personal pensions may be suitable if you’re employed and not in a company pension scheme, or as an addition to a company pension. You may also wish to set up a personal pension if you are self-employed or if you are not working but can afford to put aside money for retirement.

You pay a regular amount (usually monthly or annually), or a lump sum to the pension provider who will invest it on your behalf.

The final value of your pension fund will depend on how much you have contributed and how well the fund’s investments have performed.

Contribution Levels and Tax Relief

The Annual Allowance for pension contributions is £40,000 pa from 6 April 2017. This figure includes both employee and employer contributions.

Tax relief will continue to be at the individual’s marginal rate. This means that high-earning individuals will be able to receive up to 45% tax relief on their contributions.

For each pound you contribute to your scheme, the pension provider claims tax back from the government at the basic rate of 20 per cent. In practice, this means that for every £80 you pay into your pension, you end up with £100 in your pension pot.

Drawing your Personal Pension

You can take a pension commencement lump sum of up to 25% of the value of your pension savings, which is currently tax free, when you retire (up to a maximum of 25% of the lifetime allowance). From April 2018 the lifetime allowance is £1.03 million increasing to £1.055 million in April 2019
You then have two main options:

• Use the rest of the fund you have built up to buy an annuity (a regular income payable for life) from a life insurance company. This does not have to be the same company that you have your pension plan with.
• Take an income (taxed at your normal Income Tax rate) from the remainder of your fund while it remains invested.

It should also be remembered that under the new pension flexibility rules, one off lump sums may be available to be taken from the pension plan from age 55 onwards. These lump sums will be available subject to the scheme rules allowing, and similar to all pension income options, there will be taxation issues to consider if income is taken.

How does it work?

The fundamental idea behind a personal pension plan is simple. You put money into a savings fund and it hopefully grows in value. At retirement, you convert the fund into a regular income payment, which is designed to replace some (or all) of your employment income.

How much should I invest?

You should invest as much as you can comfortably afford, as soon as you can. You should not overstretch yourself and you should be sure that if you commit to a monthly investment, it will continue for a long time.

What about State Benefits?

The new State Pension is a regular payment from the government that you can claim if you reach State Pension age on or after 6 April 2016.

The full new State Pension is £159.55 per week however the sum you will receive depends on your National Insurance record.

Ask yourself the following questions:

• Is the level of savings you are proposing realistic from a retirement and state pension perspective?
• Do you want the discipline of a monthly investment or could you make lump sum payments from time to time (or both)?
• How much would you need to live on, if you retired today?

Please contact us to arrange your pension review.

A pension is a long term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.