Personal Pensions

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.