Personal Pension Plans

A Personal Pension plan helps you save money for retirement and is available to any UK resident who is between the ages of 16 and 75 (children under 16 cannot start a plan in their own right but a legal guardian can start one on their behalf).

You can start a Personal Pension even if you have a workplace pension, or if you’re self-employed and don’t have access to a workplace pension. You don’t have to be working to take out a Personal Pension and you can also provide a Personal Pension for your spouse/partner or your child/children.

When you contribute to a Personal Pension plan, your money is invested by the pension provider (sometimes an insurance company) to build up a fund/pension pot over a number of years.

Tax relief

If you’re a basic rate taxpayer, your pension provider will claim back Income Tax at the basic rate (20%) on your behalf on the contributions you make and add it to your pension pot. Higher rate taxpayers claim an additional 20% rebate through their tax returns.

Contribution limits

The total amount (the ‘annual allowance’) you or your employer can contribute to a defined contribution personal pension scheme, or schemes, is limited to £40,000* per annum or your annual salary, whichever is lower. If you contribute more than that you will pay a tax charge. Your pension is also subject to a 'lifetime allowance' which is the total value of pension savings you can have before incurring a tax penalty. This figure is currently £1,073,100*.

Tax-free cash

Most schemes allow you to withdraw 25% of your fund tax-free from age 55 onwards. Subsequent withdrawals are subject to income tax, but not National Insurance.

The size of your pension pot will depend on:

  • the amount of money you paid into the plan
  • the performance of the plan’s investments
  • charges payable under the plan
  • advice charges (where applicable)

Taking your pension

Although most Personal Pensions specify an age when you can start withdrawing benefits (usually between 60 and 65) you are currently allowed to do that from age 55 if you wish. This may increase in the future. You don’t have to stop work to draw benefits from a Personal Pension plan.

Death Benefits

If you die before the age of 75 and haven’t purchased an ‘annuity’, your beneficiaries can inherit the entire pension fund as a lump sum or draw an income from it completely free of tax. If you’re over 75 years of age when you die, there will be tax to pay on any withdrawals made by the beneficiaries of your pension.

*Tax year 2022/2023

 

!

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