Understanding personal pensions

A personal pension is a private pension you arrange with a bank, building society, insurance company or unit trust. The pension gives you a regular income in your retirement. Find out if a personal pension is suitable for you.

About personal pensions

With a personal pension you pay regular monthly amounts or a lump sum to a pension provider who invests it on your behalf. Other people and family members can pay a personal pension on your behalf.

Some employers set up group personal pensions for their employees.

Suitability of a personal pension

Your decision depends on how much you can afford to save for your pension and how much you will get from other pensions.

A personal pension may be suitable for you if:

  • you are self-employed and don't have access to a workplace pension
  • you aren't working but can afford to pay into a pension
  • you want to save more for retirement
  • your employer offers it as a workplace pension scheme

Stakeholder pensions

If you have moderate earnings and think you'll need to stop and start payments or vary the amount, you might consider a stakeholder pension. A stakeholder pension is a flexible personal pension.

Other factors to consider before getting a personal pension

Choosing a personal pension scheme is an important financial decision with several factors to consider:

  • what are the rules on making contributions?
  • how will the money be invested?
  • how much does the pension provider charge you for setting up your pension and for administration?

How much pension you can get

You will receive a yearly forecast from your pension service provider. This will tell you how much:

  • your fund is worth
  • you can expect to receive if you continue to contribute at your current level

The final value of your pension fund will depend on how much was paid in and how well the fund's investments performed.

Pension charges

The pension provider may charge you for starting and running your pension. Usually they take a percentage from your pension fund. Check your pension statements for any charges.

If you have questions about your personal pension, ask your pension provider.

Taking your personal pension

The earliest age you can take a personal pension is usually 55, depending on your arrangements with the pension provider or pension trust.

Your pension provider can tell you what your scheme allows and if there are any special circumstances when you can take your pension early.

You don't need to be retired from work to get your pension benefits.

Financial advice about personal pensions

If you're unsure that a personal pension is right for you contact the Pensions Advisory Service for free advice. An independent financial or pensions adviser can help you decide which personal pension is suitable for you. They usually charge for giving advice.

Tax and your personal pension

Find out about the tax advantages of pensions.

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