Private pensions, also knows as personal pensions, are products that you can use to save money for retirement.

What is a personal or private pension?

A personal or private pension is a pension scheme that you can set up on your own to save for your retirement. Same as any other pension scheme, its value is determined by your contributions, as well as the performance of your investments over time.

Private pensions explained

Private pensions are not that different from company pensions. The thing that differentiates them from company pensions is that they are set up by you and not your employer. Once you set it up, you can make monthly payments or make a one-off payment to your pension fund, and your pension provider will make sure that you get tax relief.

The money you add to your private pension can usually be invested in unit linked investment funds, each featuring a different level of risk.

When you reach age 55 (or 57 from 2028), you can take your private pension as a lump sum, purchase an annuity, leave it invested, or withdraw cash when required.

Personal vs Professional

Tax relief on private pensions

If you start putting money into your private pension, tax relief is claimed at source for basic rate tax payers, and via self-assessment for higher rate tax payers.

The default tax top up rate is 20% on every contribution you make. For example, if you add ₤100 to your pension, you will get ₤20 on top of that by the HMRC. That way, for every ₤100 you bring to your pension, you get a total of ₤120.

Additionally, higher rate taxpayers can claim 40% through self-assessment tax returns. According to the official rules and guidelines for 2022/23, it is possible to get tax relief on pension contributions ₤40,000 or up to 100% of your salary (the lower value is taken into account). Click here to learn more about pension tax relief.

Who needs a private pension?

Workplace and personal pensions present a great opportunity to supplement the income you might be getting from your state pension. The current value of a state pension is set at ₤9,627.80 a year.

Thanks to auto-enrolment, all employers need to pay pension contributions to all of their employees. That means your employer funds your state pension fund.

Saving into both a workplace and a personal pension is considered a great idea if you are self-employed.

Need help setting up a personal or private pension?

Our team of qualified, regulated financial advisers can answer any questions you might have around personal or private pensions.

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