Pensions
Pensions in Luton
Pensions
These pages provide generic information about various aspects of financial services and provide some ideas and indicators about possible areas of need.
We hope they are helpful but they do not, on their own, add up to proper investment advice and we cannot take responsibility for anything you do in reliance on them without further discussion with us. Do not make a decision based upon the information contained within these pages alone.
They are not detailed or comprehensive enough to enable you to make a correctly informed decision.
Personal Pensions
Personal pensions are designed for the millions of self employed & employed individuals who do not have access to a company pension scheme.
Introduced in July 1988, they were part of a government push to extend pension choice & encourage 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 PPP's, though most are run by the large insurance companies and banks.
Eligibility
Anyone over the age of sixteen provided they are receiving earned income or income from business profits (both described as Net Relevant earnings) and are not already a member of a company pension scheme.
There are no limits to the number of plans an individual can have, you could take out six from six different companies which has the advantage of spreading your investment across serveral providers! However you would have to watch out for the cumulative effects of charges.
How they work
Unlike many company schemes, all personal pensions work on a 'money purchase' basis. This means that upon reaching your retirement date, you use the money that has built up in your personal pension to purchase an annuity. Its the annuity which then provides you with income in your retirement. So it follows that the value of the pension at retirement, is dependent upon:
- How much money you've paid in over the life of the plan,
- How well the money has grown
- What annuity rate your pension fund purchases when you retire.
- The ongoing tax status of Personal Pensions as decided by the Government.
In other words a personal pension is just a long term savings plan (albeit a very tax efficient one) that's designed to produce a lump sum at retirement. This then purchases an annuity which in turn provides the retirement income.
There is also a special type of personal pension used for 'contracting out' of S2P called an 'Appropriate Personal Pension' or APP.
What you get & when you get it.
With a personal pension, you are allowed to start taking your pension at anytime between the ages of 50 & 75. Furthermore, you do not have to stop work in order to start taking your pension, though you would be well advised to keep your contributions going and delaying your pension income for as long as possible.
Though retiring at fifty might sound tempting, building up enough money to provide a decent retirement income would probably prove very difficult.
Tax free lump sum
You are allowed to take up to 25% of your pension as a tax-free lump sum at retirement, however doing so will mean only 75% of the fund is left to provide regular pension income after you've retired. In effect then, you are allowed to 'swap' up to 25% of your pension income for a tax free lump sum at retirement
The rest of the fund must be used to provide an income in retirement through the purchase of an annuity.