Personal Pensions

Who can have a personal pension?

  • If you are self employed
  • Employed people whose employer doesn’t offer a company pension scheme
  • Employees who are not paying into a company pension
  • Employees in a company pension scheme but not earning more than £30,000 per annum
  • People who are working but earning currently under £3,600

Pensions contributions

A sum of money is invested into the policy either every month, or via a lump sum, then invested in a portfolio normally pre-selected at the point of sale which is worked out by your risk profile. You can now contribute 100% of your earnings each year up to the upper annual allowance currently £235,000.00 for tax year 2008/2009. (Anything above this amount will be subject to a tax charge).

Investments are gradually moving onto what is termed platforms* where access to a number of funds is provided through one contract, and even traditional insurance companies are now offering external funds through their products but on a limited basis.

What you can put in

Each person is subject currently to a lifetime allowance representing the allowable value of the accumulated pension fund after which a tax charge will apply on the excess. The allowance is currently £1.65 million for tax year 2008/2009.

Taking your benefits

Personal pension plansYou can currently take your pension benefits from age 50 although this will increase to 55 from 2010. When benefits are purchased you have the option of taking up to 25% of the fund value as an immediate tax-free lump sum with the balance being used to purchase an annuity which is guaranteed to be payable until death, or invested with the option to draw an income (subject to certain maximum) from the fund (called income drawdown).

Most people will also receive the benefit of the basic State pension which is built up over a number of years by way of National Insurance contributions towards a State pension. This benefit is earnings related based on the number of years contributed and the level of National Insurance paid. To find out how much your State pension is worth you can apply to The Pension Service and ask for a form BR19 and they will send you a projection of your pension.

There is also a State Second Tier Pension available to employed people only and is earnings related and based upon NI contributions made. It is possible to contract out into a personal pension including Stakeholder and invest the NI rebate.

It is worth highlighting that females born before the 6th April 1950 can claim their State Benefit at age 60.

Females born between the 6th April 1950 and the 5th April 1955 can claim their State benefit between the age of 60 and 65.

Females born on or after the 6th April 1955 will have a State pension age of 65.