Personal Pensions

With more of us now spending a greater amount of time in retirement than generations before, planning and saving for retirement at the earliest opportunity has never been so important. By getting your personal pension plan off the ground as early as possible, you will have a better chance of achieving the retirement you wish for.

What is a personal pension?

A personal pension plan is a simple type of long-term saving’s plan enabling you to build funds for your retirement. A personal pension plan is designed to ensure you have money in later life, typically when you have stopped working.

Money you put into a pension gets an immediate boost from the government, called tax relief, increasing the amount going into your personal pension plan from day one. The money is invested typically into funds that hold shares and bonds and grows over the years to deliver a retirement income.

In retirement, you can use your pension to buy yourself an income or draw on it gradually.

Most people usually start their pension through their workplace, but you can also set up and manage your own through a personal pension.

How do personal pensions work?

After choosing the personal pension provider that works best for you, you can begin making pension contributions.
You can do this as recurring monthly or lump sum payments.

This money is then invested by your pension provider. Depending on who you choose as your pension provider will
determine where your money is invested. This could be in assets such as stocks and shares, bonds, and property.


You can also choose providers based on their investment credentials, such as eco-friendly investments. Not only can you ensure your pension works for your ambitions, but for your values too.

The earlier you start making pension contributions, the more money you’re likely to build up in your pot, also known as compound interest.

For example, if you invest £5,000 of pension contributions every year, with a yearly average growth of 5%, the amount of interest earned will quickly stack up. By the end of year one, you’ll have earned £250. In year two, you’ll make 5% of £5,250 – an additional £262.50. The longer you save into a pension before retiring, the more money you could have at pension withdrawal. Your provider will share annual statements with you, so you are aware of how your pension is performing.

How much you put in, how the pension has performed over time, and how you choose to receive the money when you retire will all play a part in how much you receive. Pension withdrawal can happen from 55 years old but from 2028, this will increase to 57 years old.

When you choose to retire and withdraw your retirement income, most pensions allow you to take 25% of your retirement pot tax free, up to a limit of £268,275. The remaining 75% can be drawn down in whatever amounts you choose, to provide a retirement income or to use as lump sums, whenever you choose to do so.

The remaining funds will be taxed, and tax is calculated and deducted from private pensions in the same way that salary or wages are paid by an employer. That means it’s taxed under the Pay As You Earn (PAYE) system before it is paid to you. As a result, any income from a personal pension scheme that you hold with a pension company, or an employer will be taxed in this way.

Options at retirement are now more flexible, giving individuals the ability to make their retirement income bespoke to them.

The benefits of a personal pension

Tax relief on personal pensions is one of the biggest benefits of a personal pension scheme. The government contributes 20% basic rate tax relief of the total amount invested in your self-invested personal pension (SIPP).

To pay in a total of £100 to your SIPP, you only need to contribute £80, and the government will pay the other £20. If you pay income tax at above the basic rate, you can claim even more tax relief through your tax return or by writing to HMRC. With your 2023/24 tax year pension allowance, you can receive tax relief on contributions up to a maximum of £60,000, capped at the amount you earn if this is less. If you are a higher rate, or additional rate taxpayer, then you will be able to reclaim further tax relief on your pension contributions through your annual tax return.

You cannot normally access your pension until age 55 (57 from 2028), which means you have the comfort of knowing that your money is locked away for your future. Your pension pot grows free of income and capital gains tax over time, and you can normally take up to 25% tax free cash, with the rest of your withdrawals subject to income tax at your marginal rate. The sooner you start, the more time your savings have to grow. Your savings can also benefit from compounding when any profits or income generated by your funds are reinvested, rather than being paid out to you. Personal pension schemes are one of the most tax efficient savings solutions available.

Personal pensions also provide inheritance tax relief. Your pension pot is not a taxable asset, any funds that remain in your personal pension when you die can be passed onto family members free of inheritance tax.

What are the types of personal pension plans?

There are numerous types of personal pension plans to consider:

  • Defined benefit pensions
    Defined benefit pensions

    A type of workplace pension arranged by and fulfilled through your employer. Rather than being investment driven, a defined benefit pension has set rules that your employer’s scheme will stipulate. Information such as your salary and how long you’ve worked for the company will be considered and from there, the pension provider will agree to pay you a certain amount every year from retirement until death.

  • Defined contribution pensions
    Defined contribution pensions

    This is either a workplace or a personal pension. You pay into your pension pot which is then managed by your pension provider. The value of your pension can go up or down, depending on how the investments performed.

  • Self-invested personal pensions (SIPPs)
    Self-invested personal pensions (SIPPs)

    A SIPP is very similar to a personal pension. However, one key difference is that you have control over where the money is invested. You can manage this by yourself or with the support of a financial adviser.

  • Annuities
    Annuities

    Annuities can also be known as guaranteed income products and are sold by insurance companies. Using your savings, such as some or all your pension pot, you can purchase an annuity. Annuities will give you guaranteed income in retirement. There are different types of annuities to suit your needs, such as lifetime, fixed-term and enhanced.

  • Choosing a personal pension plan
    Here’s what you need to consider when choosing a personal pension plan:
    • What are your financial goals?
    • How much can you save into a personal pension scheme?
    • What’s your appetite for risk?
Defined benefit pensions
Defined contribution pensions
Self-invested personal pensions (SIPPs)
Annuities
Choosing a personal pension plan
Defined benefit pensions

A type of workplace pension arranged by and fulfilled through your employer. Rather than being investment driven, a defined benefit pension has set rules that your employer’s scheme will stipulate. Information such as your salary and how long you’ve worked for the company will be considered and from there, the pension provider will agree to pay you a certain amount every year from retirement until death.

Defined contribution pensions

This is either a workplace or a personal pension. You pay into your pension pot which is then managed by your pension provider. The value of your pension can go up or down, depending on how the investments performed.

Self-invested personal pensions (SIPPs)

A SIPP is very similar to a personal pension. However, one key difference is that you have control over where the money is invested. You can manage this by yourself or with the support of a financial adviser.

Annuities

Annuities can also be known as guaranteed income products and are sold by insurance companies. Using your savings, such as some or all your pension pot, you can purchase an annuity. Annuities will give you guaranteed income in retirement. There are different types of annuities to suit your needs, such as lifetime, fixed-term and enhanced.

Here’s what you need to consider when choosing a personal pension plan:
  • What are your financial goals?
  • How much can you save into a personal pension scheme?
  • What’s your appetite for risk?

Who needs a personal pension?

A personal pension plan is for anyone, whether you’re employed, self-employed or currently not working. It’s an invaluable asset to ensure you’re set up for your future goals with a long-term retirement income.

Personal pension plans give the security of knowing that you’re building up a nest egg for your retirement income. With state pensions becoming less generous and the state pension age increasing, it’s more important than ever to take responsibility for your own retirement savings.

Personal pensions with Cooper Associates

Our financial consultants are hugely experienced in helping people plan a long and happy retirement with the lifestyle they desire.

Planning your retirement with us helps to put you in control so you can be confident about your future pension.

We offer a service that is personal to you, delivering bespoke advice. We have access to a range of plans to help provide for your retirement, no matter what stage of planning you are at.

Julia and I are very happy to recommend Cooper Associates Wealth Management as we are both enjoying our retirement with financial security thanks to their sound advice.

Mr and Mrs Statton, Retired

A tax-efficient retirement with Cooper Associates

Ready to secure your financial future? Discover the power of personal pension plans today.

With tax benefits, retirement income, and complete control over your savings, personal pensions offer a flexible and reliable path to a comfortable retirement. Don’t leave your future to chance – take charge and start building your future with us now.

Explore the different types of personal pension plans, learn how they work, and find the perfect fit for your needs. Whether you’re just starting your career or nearing retirement, our experts are here to guide you every step of the way.

The value of a pension with St. James’s Place will be directly linked to the performance of the funds you select, and the value can therefore go down as well as up. You may get back less than you invested.

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