Personal Pensions

Personal Pensions. If you're an employee and are not a member of an occupational pension scheme or are self employed you may choose to set up a personal pension plan.

You pay contributions (net of basic rate tax if you're an employee) and choose what sort of investment you want from those on offer. What you will get out will depend on what you put in and on the investment performance of your accumulated fund.

There are attractive tax breaks associated with saving for your pension. Having saved for your retirement, you have a few key choices to make such as: Do you want to buy an annuity from your existing pension company or from someone else. It will pay you to shop around.

You have a right, if you choose, to take your pension fund elsewhere to secure a higher income in retirement. This is the 'Open Market Option'. You may then choose whether you want to use the whole of the pension fund which has accrued to buy an annuity or to take up to 25% as a tax-free lump sum and the rest to buy a smaller annuity. You can choose an annuity that is fixed or one which starts lower but increases each year to help with inflation.

You can also arrange for your wife or husband to continue to receive some of your pension if you die first. You do not have to purchase an annuity until you reach age 75. If your pension fund is large enough you could opt instead for phased retirement or income drawdown.

Old style individual pension plans are known as retirement annuity contracts.

Last Updated: February 2008 © Moneyextra.com

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