Personal pension plan
Tax efficient saving for your retirement
A personal pension plan is a tax efficient vehicle used to build a source of income for your retirement. They
are offered and administered by regulated financial organisations such as banks and insurance companies.
How does a personal pension plan work
Personal pension plans are money purchase pensions (or defined contribution) schemes as opposed to
defined benefit schemes sometimes offered through your employer.
You can pay lump sums and/or make regular payments into your personal pension plan. You will receive tax relief on your contributions
at your marginal rate of income tax on any contributions that fall within the annual limits set by the government. Tax relief
at the basic rate of tax is added automatically to your personal pension plan when you make any qualifying contribution. However, if you pay the higher
rate of income tax
the additional tax relief will have to be claimed back through your annual self-assessment - it is not automatically paid
into your pension when the contribution is made.
You don't have to be employed to pay into a personal pension and, if you are employed, your employer has the option
to also contribute (see auto enrolement, work place pensions).
Your contributions are invested by the provider with the aim to grow your fund, or pension pot. It is
important your contribution investments perform well because the size of your pension pot is a major
contributory factor to the size of pension you will receive in retirement. You will have the option to decide which
funds you want your contributions to be invested in. This will depend on your investment horizon, ie, how far away from
your chosen retirement date you are, and you attitude towards investment risk.
At retirement which, under current legislation, is 55 years of age or over, you have a number of options including using
pension pot to purchase an annuity. The annuity rate at the time of purchase
will decide how much pension you will receive. You will also have the option to take a proportion of your pension pot as a
tax free cash lump sum. However, you will need to be made aware that this will reduce the funds available to purchase an income thereby
reducing the resulting purchased income.
In retirement, any pension payments will be liable to income tax at your marginal rate. Therefore, the tax relief you
enjoy through your contributions can be viewed as your tax liability being deferred to your retirement.
We have a thorough understanding of pensions here at All Counties Financial Ltd and understand how important it is
for you to start considering your source of income in retirement. We are happy to bear the cost of your initial
consultation giving you the chance to ask us questions on how you can start preparing for the cost of retirement.
Call 0800 634 4846 to arrange your initial consultation