Pension Types
Expert Advice
Independent Financial Advisers have access to the whole pensions market, they
have no links or ties to any one particular product provider and
will work for you to find the best financial product that meets your
needs.
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Personal Pensions
Personal Pension Plans (PPPs) were originally designed for the millions of employed & self-employed individuals who did not have access to a company pension scheme,
they were part of a government push to extend pension choice & encourage those people not in company schemes to build up a retirement fund;
one that could cater for their retirement needs more realistically
than the state. Many financial institutions offer PPPs, though most
are run by the large insurance companies and banks.
IFA's can research the whole of market on your behalf to find
a suitable pension plan, it may be that a PPP meets your needs for
retirement provision. Following the recent sweeping changes implemented on
the 6th April 2006 to pension legislation (see section on Pension simplification)
these contracts are very flexible and can allow contributions to be
made of up to 100% of your earnings. Furthermore these plans can be
set up for non-working spouses and even children and grandchildren
where up to £3600 gross can be invested annually. (The annual allowance and
lifetime allowance applies)
Unlike some company schemes, all personal pensions work
on a ‘money purchase’ basis. This means that the money you save each
month or each year into your Personal Pension plan is invested (typically
in investment funds) and is then used at retirement to provide you
with pension benefits. So in theory the more you save the better your
pension should be at retirement.
On reaching retirement, you use the money that has built
up in your personal pension to purchase pension benefits, these benefits
can be taken in the form of either income or income with a tax free
lump sum (The Pension Commencement lump sum). Or the benefits can be
transferred to another type of plan which provides unsecured pension
benefits (see section on Income Drawdown / Pension Fund Withdrawal),
these types of plan allow additional flexibility in that pension benefits
can be drawn whilst your pension fund remains invested.
The value of your pension at retirement is mainly dependent upon:
-
How
much money you've paid in over the life of the plan
-
How well the
money has grown
-
The annuity
rate that the provider applies to your pension fund (if you choose
to take an annuity)
-
The level of
Pension Commencement lump sum taken. (Up to a maximum of 25% of
your pension fund can be drawn as capital) i.e. the tax free lump
sum.
So a Personal Pension Plan is really just a long term savings plan (albeit a
very tax efficient one) that is designed to produce a fund at retirement.
At retirement provision can be made to protect your pension from the
eroding effects of inflation, protect your income in the event of your
death and make provision for your spouse or dependants. (see the Annuities
page). Benefits can currently be drawn from age 55 onwards.
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