Personal or Private Pensions
What is a personal or private pension?
A personal or private pension is a pension scheme that you can set up on your own to save for your retirement. Same as any other pension scheme, its value is determined by your contributions, as well as the performance of your investments over time.
Private pensions explained
Private pensions are not that different from company pensions. The thing that differentiates them from company pensions is that they are set up by you and not your employer. Once you set it up, you can make monthly payments or make a one-off payment to your pension fund. Once you do that, your pension provider will make sure that you get tax relief.
The money you add to your private pension can be invested in a wide range of assets such as bonds, shares, property, etc. Once you start with your pension, you will have access to a wide selection of pension funds, each featuring a different level of risk.
Once you are 55 years old, you will be able to withdraw a lump sum from your personal pension, purchase an annuity, re-invest it if needed, or withdraw cash when required.
Tax relief on private pensions
Once you start putting money into your private pension, your pension provider will claim the tax relief you are entitled to and add it back to your pension pot.
The default tax top up rate is 25% on every contribution you make. For example, if you add ₤100 to your pension, you will get ₤25 on top of that by the HMRC. That way, for every ₤100 you bring to your pension, you get a total of ₤125.
Additional and higher rates of up to 31% can be claimed through self-assessment tax returns. According to the official rules and guidelines for 2020/2021, it is possible to get tax relief on pension contributions ₤40,000 or up to 100% of your salary (the lower value is taken into account).
Who needs a private pension?
Workplace and personal pensions present a great opportunity to supplement the income you might be getting from your state pension. The current value of a state pension is set at ₤9,110.40 a year.
Thanks to auto-enrolment, all employers need to pay pension contributions to all of their employees. That means your employer funds your state pension fund.
Saving into both a workplace and a personal pension is considered a great idea if you are self-employed.
Do you need help setting up a private pension or simply want to learn more?
UK Pension Help can connect you to a qualified, regulated financial adviser who can answer any questions you might have around personal or private pensions.
Book your free, no obligation consultation today so they can further assist you.
