What is a personal pension? How can I get one? What does it consist of? This is a type of pension you make payments towards, which invests your money in things such as stocks and shares of companies. Indeed, you may also be able to withdraw some of all of your pension fund after a certain age. This article will tell you everything you need to know about personal pension. 

What is a personal pension?

A personal pension is a pension where you make recurring payments towards a pension fund. You might also know them as ‘money purchase‘, or ‘defined contribution‘ pensions. Then, how much you contribute financially will typically directly impact how much you will receive with a personal pension.

Your pension provider will diversify where your pension payments go. Indeed, your pension contributions will be put in investments. This can include, for example, being invested into shares and stocks of companies. Typically, what you receive from a personal pension depends on the following:

• The manner in which you decide to take your payments;
• The performance of the investments (indeed, it’s not guaranteed that the investments only go up);
• How much money has been invested in total.

How can I contribute to my personal pension?

The way that you can make contributions for your pension provider is rather flexible. Indeed, you can make single lump sum payments towards your pension. However, you may also make recurring, regular payments, like weekly, monthly or yearly.

Your pension provider will send you statements. Indeed, these are done annually, to inform you of the value of your pension fund.

Your pension contributions can often grant you tax relief. However, for this to be the case, your specific scheme needs to be registered with Her Majesty’s Revenue and Customs (HMRC). If this is not the case, you will not qualify to receive a tax relief.

Personal Pension: what are the different types?

There are many types of personal pension. Indeed, among them are stakeholder and self-invested personal (SIPP) pensions. Stakeholder pensions need to adhere to government guidelines. Indeed, this might include charges not exceeding a certain amount. Self-invested personal pension (SIPPs) allow you more control over your investments.

Stakeholder pensions are subject to government regulation. As such, make sure that your stakeholder pension provider is registered with either the Pensions Regulator or Financial Conduct Authority (FCA).

When can I take my Personal Pension?

Typically, there will be an age that is determined for when you are able to take payments from your pension. Most of the time, that age is not below 55 years old. This age is set by your pension provider, so if you are unsure of what it is, you can contact them to check.

Moreover, you will then be able to take out the remaining 75% (on which you typically need to pay taxes). However, you will have 6 months to do so. 

You have some options for how you want to take out the amount of money that remains in your personal pension. Indeed, they are as follows:

• Annuity, or buying a certain product which will provide you with a guaranteed income for the rest of your life;
• Taking what remains in your account (either all of it or only a part);
• Flexi-access drawdown, or investing what remains to receive an adjustable and regular income.

What if I buy an annuity?

You could be able to buy an annuity. Indeed, you would then buy one from an insurance company. Then, you could receive recurring payments for the rest of your life. Indeed, check with your pension provider to see if this is an option for you, and if they can pay for it using your pension pot. 

How much money you can receive varies. Indeed, this depends on a multitude of factors. A couple of these factors are how long they will need to pay you for, as well as how long they expect you to live for. However, note that the following factors are likely to pay into how much you get:

• The payment’s interest rates;
• The current status of your health (this is not always considered);
• How much money is in your pension pot;
• How old you are and what your gender is.

What if I want to take money out of my pension pot?

You could be able to withdraw cash from your pension pot for your personal pension. Indeed, you could take out all the money in your pot, some of it, or transfer it directly in your bank account (note that if payments exceed £4,000, you will typically have to pay taxes on them).

However, it could be the case that you cannot withdraw parts of your personal pension pot in cash. In fact, this could be the case if any of the following conditions are true for you:

• You are younger than 25 years old, and how much you want to take out is superior to your remaining lifetime allowance;
• In total, with your pension schemes, you have saved £1,073,100 (which is your lifetime allowance);
• You have a lifetime allowance protection.

What if I put money in a drawdown fund?

Your pension provider may offer the option to invest in a flexi-access drawdown fund for your personal pension. You would then use money out of your pension pot. Then, you have options of what you can do once that money is in the fund, you have a couple of options open to you.

Furthermore, you may have a ‘capped drawdown fund’. This is no longer available to new applicants, but those who have one can continue to use it. Then, your money will continue to be invested.

Do I need to pay taxes on my personal pension?

You may need to pay taxes when you take out your personal pension. However, then, what you owe in taxes will be automatically deducted by your pension provider. Additionally, if you take out large amounts of money from your pension, you may have to pay more taxes on the payments.

At the end of the year, you may even have to pay more taxes after taking out a large amount from your pension. Lastly, your pension provider may charge you for taking out cash payments from your pension. Indeed, if you are unsure, check if this is the case with them.

What Personal Pension should I choose?

There are a lot of personal pension that you can choose from. As such, you should watch out for certain things when choosing a personal pension. First, make sure that you know what options are available (this article is a good first step). Then, write down your different options and compare them.

Look at any charges that you would have to pay. This may include things like charges simply for managing your fund, transfer charges and administrative costs. However, personal pension providers may also charge you for taking out parts of your pension. As such, make sure that you know about all charges in a pension scheme.

Then, make sure that you would be able to pay the contributions. Indeed, your pension provider may require a minimum amount of contributions to be made. As such make sure that you know the rules for the pension (will payments have to be regular? Can you instead pay whenever you want?…).

Then, look at what investments will be made in your investment scheme. Indeed, this may include the investment choices that you have. Make sure that you are comfortable with the given level of risk that investments in your pension scheme offer. 

How can I identify pension scams?

Before signing anything, always make sure that you know the rules, requirements and charges of a pension scheme. Additionally, make sure that you know that said scheme is legitimate. Pension scams can try to trick you out of your money.

In April 2015, the rules for withdrawing pensions changed. Now, you are able to take out lump sums from your pension fund. Indeed, this means that if you want to take it all out, you may be able to do so.

As such, many scams have started to occur for personal pension. Indeed, they know that you can take your pension out in lump sums. As such, they will propose to invest your pension into investment opportunities, but will simply “take your money and run”.

Such scams might have official-looking websites, making it seem like they could be a legitimate company or pension provider. However, always make sure that they are registered with the FCA. If they are not, then this is likely a scam. In virtually all cases, you should then not give them your money.