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.
Introduced in July 1988, 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.
We can research the Whole of the Market on your behalf to find a suitable Pension plan, it may be that a PPP meets your needs for retirement provision. These contracts are very flexible and can allow tax relievable contributions to be made of up to 100% of your earnings or £3,600 whichever is the greater) subject to a maximum of £40,000 per annum which is the current annual allowance. Furthermore these plans can be set up for non-working spouses and even children and grandchildren.
How they work
Unlike some company schemes, all personal pensions work on a ‘money purchase’ basis. This means that the personal pension contributions you make each month or each year into your Personal pension plan are invested (typically in investment funds) and are 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 only or income with a tax free lump sum (The Pension Commencement lump sum). Alternatively the benefits can be transferred to another type of plan which provides a drawdown facility (see the section on Capped and Flexible Drawdown). 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 fund has performed
- The annuity rate that the provider applies to your pension fund (if you choose to take an annuity)
- level of Pension Commencement lump sum taken. (Up to a maximum of 25% of your pension fund)
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 effects of inflation, protect your income in the event of your death, and make provision for your spouse or dependants.
Benefits can currently be drawn from age 55 onwards.
A PENSION IS A LONG TERM INVESTMENT THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND ON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES, AND TAX LEGISLATION