To build up an adequate retirement fund you should belong to a pension scheme as early as possible. Competition for pension business is fierce and as a result providers offer a range of benefits and choices so it pays to shop around.
Plus Points: Personal Pensions provide flexibility and enjoy tax benefits. They are portable as they are not tied to a particular job and often you can start to receive your pension from the age of 50. As well as a pension when you retire you may have the option to take up to 25% of your retirement fund as a tax-free lump sum. Personal Pensions can provide an income for your dependants if you die. If this occurs before retirement age, your dependants can get a cash sum, usually tax-free. Some mortgage lenders may allow you to borrow against your future fund value.
Points To Watch: You will normally be responsible for making all the contributions to your pension. Some employers agree to contribute as well. The running costs of your scheme will be met by your fund. Some 25% of people starting a personal pension stop within three years. As your early contributions are used to meet the set up costs of the pension, often there will be little left of your fund. Consider the providers charges because if the costs are high, your fund will have to perform well compared to those with lower costs.
All Personal Pensions are Money Purchase Schemes. Your pension depends on the contributions made towards your retirement fund and the fund's investment performance. The performance depends on the amount of risk you are prepared to accept. Upon retirement, your fund is used to purchase an Annuity that provides you with a pension income.
A Personal Pension can also be used to contract out of the State Earnings Related Pension Scheme (SERPS).
General
Personal
Stakeholder
Occupational or Company
AVCs
Annunities
State Pension Scheme
