What is a personal pension?
A personal pension is where you pay money into a scheme that invests your contributions into a choice of funds on your behalf. You usually arrange personal pensions yourself as they’re not linked to your place of work, although they’re sometimes provided by workplaces too.
You can make regular payments to your personal pension or pay in a lump sum (or both if you want) as long as you remain within the contribution limits. How much you get back depends on what you’ve paid in, how the fund has performed and how you take your money at retirement.
The age when you can take your benefits is flexible, although the earliest age pension schemes let you take money from your pot is 55 but the government proposes to increase this to age 57 from 2028 . But in cases of ill-health, this might be earlier.
The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.
What are the benefits?
The biggest benefit is that everyone gets 20% tax relief on all pension contributions, provided your pot doesn’t go over:
- 100% of your earnings (up to £40,000) in a year.
- The lifetime allowance for most people is £1,073,100 in the tax year 2023/24. In previous years, you would have paid a lifetime allowance charge on any pensions savings over this amount. But from 6 April 2023 that charge has been removed.
As a non-earner, you can still receive 20% tax relief even if you don’t pay tax.
In this case, the most you can pay into your pension is £3,600, made up of your contributions of £2,880 and the taxman’s contribution of £720.
Tax treatment varies according to individual circumstances and is subject change
What if I’ve already got a pension?
If you’ve been working for a while and have changed jobs at least once, the chances are you’ll have more than one pension scheme somewhere. They could have considerable amounts invested in them.
There’s nothing to stop you having an additional pension running alongside your existing ones or checking if you’d be better investing in a different scheme. Just remember the limits on how much you can invest to receive tax relief will apply across all of them.
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If you’d like some help and advice about personal pensions, please send us a message using the form on the right-hand side of this page. We’ll get back to you as soon as we can.
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