Personal pension plans are ‘money purchase’ pension arrangements. The money you contribute to the plan is invested to build up a fund. This provides a lump sum and income at retirement.
You need to bear in mind that the tax rules governing pensions and the favourable tax treatment they offer might change in future.
The key benefits include:
- Wide choice of investment funds – compared to stakeholder pensions, you’ll have more choice of funds to invest in. Some may offer opportunities for better performance and the potential for a larger pension fund when you retire
- Flexibility - You decide how much and how often you want to contribute. Investments can be lump sums or regular payments, and you can alter the amount of the contribution you pay. You may also be able to have a personal pension as well as other pension schemes
- Portability - You can transfer personal pensions to another type of pension plan or to another provider. You might do this to make cost savings or take advantage of new investment opportunities. If you want to consolidate your personal pension with any other pensions you hold, you can do this too – either within your personal pension scheme or the other pension scheme.
Is it for me?
Because the choice of investment funds is wider for personal pensions than for stakeholder pensions, you might pay higher charges. SIPPs offer the widest choice of investments but are generally only suitable for more experienced investors who have time to manage their own investments. The charges for SIPPs
tend to be more expensive too. You can compare the investments within a personal pension with those available via a Barclays Stockbrokers SIPP
A personal pension may suit if you:
- Are not eligible to join a company scheme , or
- Are self-employed, or
- Are looking to supplement your company scheme and want a wider selection of investment funds than available through a Stakeholder Pension.
How much will I get?
If you do opt for a personal pension, the amount of income your pension fund will pay when you retire depends on:
- The amount of money you have paid into it.
- How well your chosen investment funds perform over time, and the charges you’ll pay.
- The size of any pension commencement lump sum you take at retirement.
- The annuity rate when you start drawing your pension, or the rate applying to whichever arrangement you use to convert your pension fund into a regular income.