Your Guide to Personal Pension Choices in the UK
Personal Pension Schemes (PPS), or Personal Pension Plans (PPP), are in effect UK tax-efficient individual investment vehicles. They are primarily designed to help you build a capital sum that will provide for your retirement.
Personal pensions are a great way to help secure your golden years. The advantage of a personal or stakeholder pension is the government will pay tax relief on the contributions you make to your pension fund. This means that for every £80 paid into your fund, the government will pay a further £20. If you pay tax at higher rate, you can claim the difference through your tax return or by telephoning or writing to HMRC. If you’re an additional rate taxpayer you’ll have to claim the difference through your tax return, your Financial Adviser (IFA) can help with this.
It’s a good idea to get started as early as possible to secure your nest egg for when you retire. The following guide will explain the main personal pensions available in the UK, so you can make the best choice for your particular needs.
Clarifying your Pension Plan Needs
When choosing the pension plan that works best for you, it’s important to clarify your needs. You’ll want to consider how much money will be needed to fund a comfortable retirement and how much you can afford to invest in your pension until then. Ask yourself the following questions when looking at different options:
· Risk and Return – What level of risk are you willing to take with your investments? (This could determine the returns you can expect in the future).
· Flexibility – How much leeway do you need to have, should you want to change your payment amounts? (It’s vital to be able to save when and how it suits you individually.)
· Access to cash – How quickly will you need access to your savings? (i.e. will they be locked in or can you make withdrawals if circumstances demand without heft penalty fees).
· Taxation – What are the tax features of each plan and will you be taxed on entry or exit?
Types of Personal Pension Schemes
There are two main types of PPS/PPP:
Insured Personal Pension
Under this type of plan, each contract will have a defined range of investment funds for you as the plan holder to choose from. While this sounds restrictive, the schemes these days offer over 1,000 fund options
Self-Invested Personal Pension (SIPP)
These types of retirement plans are excellent in terms of flexibility since they provide a range of different investment options which are entirely under your control. Although they carry a higher risk to the funds you put in, they are tax efficient.
Within this framework, you can look into the following options:
Stakeholder Pension
These are similar to Insured Personal Pensions, with the difference being that their charges are capped at a low level. They offer low costs and generous tax benefits. You can start one of these for as little as £16 per month and they can be taken out by both individuals and employers.
Active Money Personal Pension (AMPP)
These schemes offer great flexibility – you can start saving from £80 a month and change, stop or restart your payments to suits your circumstances.
Stocks and Shares ISAs are also a great way to plan for your retirement. These ISAs currently offer a total of £10,680 tax-free savings per year. By building your investment portfolio over the years, you can then sell your shares and buy retirement fund assets such as income funds to keep your comfortable in your golden years.
The value of tax savings [and eligibility to invest in a SIPP, pension or ISA] will depend on individual circumstances and all tax rules may change in the future.
Conclusion
By investing in a retirement scheme, you will have the peace of mind in knowing that your well deserved golden years will be comfortable. But do remember, the value of investments can go down as well as up and you may get back less than you invested. Whether you opt for a SIPP or a Stocks & Shares ISA to build your personal pension funds, you’ll certainly appreciate the quality of life that your nest egg will provide when the time comes.
About the Author : George Pardew is an independent journalist writing about retirement options.
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