Overview
Types of personal pensions
Personal pensions are pensions that you arrange yourself. They’re sometimes known as defined contribution or ‘money purchase’ pensions. You’ll usually get a pension that’s based on how much was paid in.
The money you pay into a personal pension is put into investments (such as shares) by the pension provider. The money you’ll get from a personal pension usually depends on:
- How much you have paid in.
- How the fund’s investments have performed – they can go up or down.
- How you decide to take your money.
There are different types of personal pension. They include:
- stakeholder pensions – these must meet specific government requirements, for example, limits on charges.
- self-invested personal pensions (SIPPs) – these allow you to control the specific investments that make up your pension fund.
You should check that your provider is registered with the Financial Conduct Authority (FCA), or the Pensions Regulator if it’s a stakeholder pension.
What’s Your Pensions Value?
There are many benefits to checking your UK pension’s value regularly as you approach retirement. By doing so, you can ensure that your pension remains on track to provide you with the income you will eventually want in retirement.
By keeping track of your pension’s value, you can be sure that you are making the most of your investment and are keeping an eye on any changes in the value of your retirement fund. This is important because it will help you identify what adjustments, if any, need to be made to your retirement plans.
Taking your pension
When can you access your pension/s?
The earliest you can currently access your UK pension is age 55 (this will change to age 57 in 2028 unless your plans have lower protected pension ages).
However, this does not mean you automatically receive your pension at this age – it simply means that you can start to take benefits if you wish. The exact amount and how often you receive your pension payments will depend on the rules of the specific scheme you’re in.
There’s no set retirement age for workplace and personal pensions, so it’s down to the rules of the individual scheme. Some schemes may require you to retire at a certain age, while others may give you the flexibility to carry on working for as long as you want. The decision of when to take your pension is a personal one and will depend on your individual circumstances.
How you can take your pension
You can take up to a quarter of your pension pot as a tax-free lump sum. The remaining balance you’ll usually pay tax on. The options you have for taking the rest of your pension pot include:
- Taking all or some of it as cash
- Income for life (sometimes known as an ‘annuity’) – Buying a product that gives you a guaranteed income for life.
- Flexi-access drawdown – investing it to get a regular, adjustable income.
Where to start
Understanding your pension options
There has rarely been a more challenging time to retire, which is why it has never been more important to understand your options. Remember, the choices you make today can have a big impact on the quality of your life later on. As a result, there will be lots of questions you’ll need to ask:
- How much money will I need to have saved?
- What will my income sources be in retirement?
- What kind of lifestyle do I want in retirement?
- What will my health care needs be in retirement?
- What are my long-term care needs in retirement?
- What are my estate planning needs in retirement?
- What are my tax considerations in retirement?
Contact one of our advisers for more information on pension planning here.
A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.
The tax implications of pension withdrawals will be based on your individual circumstances, tax legislations and regulation which are subject to change. You should seek advice to understand your options at retirement.
