Personal Pensions

Personal pensions, also known as private pensions, were originally aimed at the self-employed and other workers without access to an occupational scheme. Now, however, lots of different types of investors use them as retirement saving vehicles.

What is a personal pension?

‍With a personal pension, you pay regular monthly amounts or a lump sum to a pension provider who invests the money on your behalf. The fund is usually run by a financial organisation such as a bank or insurance company.

If you are a confident investor, you can make your own decisions where to put your retirement savings by opening aSelf-Invested Personal Pension (SIPP).

SIPPs can be opened with an independent financial advisor, stockbroker or pension provider. Is a personal pension right for me? Whether or not a personal pension is right for you depends largely on how much you can afford to save for retirement and how much income you can expect from any other pensions.

If, however, your employer offers a company pension scheme, workplace scheme or a stakeholder pension scheme into which it makes an employer contribution, you will usually be better off increasing your contributions to this fund. Saving into a pension has tax advantages too.

Your contributions are free from basic rate tax at 20%, and higher rate taxpayers can claim back the extra they pay on their tax return.

Group Personal Pension Schemes

Nowadays a number of employers offer pension arrangements known as group personal pension plans. Group personal pensions (GPP) are a collection of individual personal pension plans grouped together by the pension provider. GPPs are similar to personal pensions and are covered by the rules for personal pension plans (PPP).

Introduced in July 1988 as are placement for the Retirement Annuity Contract, an employer arranges for a pension provider to set up a GPP. You may sometimes benefit from lower fees than those for individual personal plans, which means that more of your money is invested in the pension.

With this type of pension, the fund belongs to you, and your employer normally contributes to the scheme. These pension plans can be a good option if you frequently change jobs, as the plan scan usually be taken with you to another employer.

However, if your employer arranged any special benefits, such as life insurance, these benefits will cease when you leave. If you do leave the company, the contributions (whether made by yourself or your employer) will have accrued towards a pension fund which belongs to you. You can usually take it to your new employer, leave it in the group scheme until retirement, or transfer it to another provider.

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