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Personal Pensions

Personal Pension Plans (PPPs) were originally designed for the millions of employed & self-employed individuals who did not have access to a company pension scheme.

Introduced in July 1988, they were part of a government push to extend pension choice & encourage those people not in company schemes to build up a retirement fund; one that could cater for their retirement needs more realistically than the state. Many financial institutions offer PPPs, though most are run by the large insurance companies and banks.

We can research the whole market on your behalf to find a suitable pension plan, it may be that a PPP meets your needs for retirement provision. Following the recent sweeping changes made on the 6th April 2006 to pension legislation (see section on Pension simplification) these contracts are very flexible and can allow tax relief contributions to be made of up to 100% of your earnings. Furthermore these plans can be set up for nonworking spouses and even children and grandchildren where up to £3600 can be invested annually. (The annual
allowance and Lifetime allowance applies)

How They Work

Unlike some company schemes, all personal pensions work on a 'money purchase' basis. This means that the money you save each month or each year into your Personal pension plan is invested (typically in investment funds) and is then used at retirement to provide you with pension benefits. So in theory the more you save the better your pension should be at retirement

At Retirement

On reaching retirement, you use the money that has built up in your personal pension to purchase pension benefits, these benefits can be taken in the form of either income or income with a tax free lump sum (The Pension Commencement Lump Sum). Or the benefits can be transferred to another type of plan which provides unsecured pension benefits (see section on Income Drawdown / Pension Fund Withdrawal), these types of plan allow additional flexibility in that pension benefits can be drawn whilst your pension fund remains invested.

The value of your pension at retirement is mainly dependent upon:

  • How much money you've paid in over the life of the plan
  • How well the money has grown
  • The annuity rate that the provider applies to your pension fund (if you choose to take an annuity)
  • Level of Pension Commencement Lump Sum taken. (Up to a maximum of 25% of your pension fund can be drawn as capital)

So a Personal Pension Plan is really just a long term savings plan (albeit a very tax efficient one) that is designed to produce a fund at retirement.

At retirement provision can be made to protect your pension from the eroding effects of inflation, protect your income in the event of your death and make provision for your spouse or dependants. (see the Annuities page). Benefits can currently be drawn from age 55 onwards