Personal Pension Plans
What is a Personal Pension?
By contributing to a personal pension, either lump sums or regular payments, over time the fund inside your personal pension should build up to a significant amount.
You can then use this money when you retire to purchase a retirement income for life - known as an Annuity.
Investor Profile offers a low cost, online personal pension that can make saving for retirement very easy.
For more information about how we can help you save for retirement please click here.
More about Personal Pensions...
The most important thing you can understand about retirement is that you retire when you can afford to, not when you reach a certain age.
A Personal Pension Plan can be an excellent way of saving for retirement. Where pensions differ to almost any other product is that they act as a wrapper from both the taxman and yourself.
If you like watching your money jump in value overnight, and then increase in value over time then you'll enjoy putting money in a pension. This is because HM Revenue and Customs actually rewards you by adding to your investment in the form of a tax rebate that is paid straight into your pension plan once you’ve made your contribution.
The way it works is that for every £80 you put into your personal pension HM Revenue and Customs will put in an extra £20. If you are a higher rate tax payer then you can claim a further £20 through your tax return, which means for every £100 that is going into your pension you’re only contributing £60 of your own money!
Take a look at our Pension Facts for more on this.
The good thing about a pension is that it does act as a protective wrapper from yourself as well. Over time, as we all know, there will be occasions when a sum of money is needed. It may be to pay for a wedding, to put a deposit on a new home, to afford the kids a good education etc. The temptation would be to access the money you have saved for retirement to ‘borrow’ a bit of it in the short term.
The problem is that the effects of withdrawing from an investment in this way can be significant, and can affect your eventual retirement income levels.
The advantages of investing early to allow your money to grow over time and not having access to that money until retirement age cannot be underestimated. This is the reason why pensions are an excellent way to secure a better financial future for yourself through retirement.
Quick facts about Personal Pensions...
They are available to UK residents under the age of 75.
They help you build up a retirement income.
The maximum you can invest each year is 100% of your taxable earnings or £245,000 (in 2009/10), whichever is lower.
Any income and capital gains made within your pension plan are free from income tax and capital gains tax.
They are technically known as defined contribution pension schemes.
You can take your pension at any time between the ages of 50 and 75 until April 2010, after April 2010 the minimum age at which anyone can take their personal pension benefits will rise to 55.
On retirement you can take up to 25% of the entire fund you have built up inside your pension as a tax-free cash lump sum.
The remainder of the money must be used to purchase an income for life.
The funds built up inside your pension will pass to your beneficiaries on death, if you have completed an 'expression of wishes' form, and will be free of any inheritance tax.
The maximum you can hold in all of your pensions combined is £1.75 million (in 2009/10). If your pensions are worth more than this you may get taxed 55% of the excess.
Tax levels, bases or reliefs referred to are those currently applying but are subject to change. The tax treatment of investments will depend on the individual circumstances of the investor.
