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Financial > Pensions > Personal Pensions
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A personal pension is available either on its own or as part of a group where an employer is sponsoring the overall arrangement. In both cases the policy belongs to you and no one else has access to it and so it can viewed simply as your personal retirement saving scheme.
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Tax relief is given to anybody who puts money into a Personal Pension and the limits to contributions are so high that few people will be breaking them.
With no earnings at all someone can save £2,880 per year into a pension.
For those with an income, they are not allowed to save more than 100% of that total income in any tax year and their employer is limited to a maximum of £235,000 per tax year into their individual pension including any contributions that the employee has made. Any payments above that threshold by the employer produces an Income Tax bill for you, amounting to 40% or even 50% for the lucky few who have taxable income above £150,000 per year.
WARNING - Any increases in regular contributions and any lump sums introduced after April 2009 are subject to attack by HMR&C for anyone with a taxable income above £150,000 per year. It is essential that you discuss your proposals with Corrigans before any such payments are made to ensure you do not suffer 50% income tax on the pension that you eventually receive whilst only being allowed 20% tax relief on the new money being added.
With this type of pension scheme you are in complete control because you are taking all of the risks. You decide how much you wish to save and where the money is to be invested, and these two decisions will have a large impact upon the date that you will be able to afford to retire - and the quality of your life in retirement.
At the moment you can claim your benefits at any time between your 50th and 75th birthday - although this is being changed to make the earliest date 55 from 2010.
When you do decide to take the benefits, up to 25% can currently be claimed as a tax free lump sum and the remainder must provide you with an income for life. For most people that income will be provided by an annuity, which is simply a guaranteed income for the remainder of your life and that of anyone else that you have chosen to share the pension with.
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You can design the annuity in a variety of ways to suit your personal needs.
For example: there could be an income for someone else who survives you: a minimum payment period or even some provision to offset the effects of inflation each year - and better rates are available if you have impaired health when making your claims.
In exchange for the guarantee that comes with an annuity, the entire pension fund is given away to an insurance company and so there is nothing left for your friends and family when the income payments stop.
If your pension fund is worth more than £50,000 after taking any retirement lump sum there is a practical alternative to taking an annuity. This would involve moving your pension fund into a self invested personal pension (SIPP).
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