UK Personal Pensions
Pros and Cons of a personal pension
What is a UK personal pension?
A UK personal pension is a way of saving money to ensure a comfortable retirement. In the UK it has major tax benefits which make it the best type of retirement plan for the vast majority of people, who, unless they’re rich, really do need to save for old age.
While there are alternative ways of saving for your old age, the pension is generally the best option for most people.
It’s best if you can get your employer to set up a scheme if one does not exist already.
The personal pension is not as good as an employer scheme but if one does not exist or if you are self employed, then it’s your best option.
But generally avoid personal pensions for the lower charging Stakeholder pension. This is a type of personal pension which combines low charges and flexibility.
(Read more in How does a personal pension work etc.).
Pros and Cons of a UK personal pension
It’s essential to save up for your retirement. A pension is the most obvious and best way for normal people to do this because of the major tax benefits you get and because it’s a “standard arrangement” that’s managed for you and relatively easy to keep your eye on.
You get a major boost to your savings in that the HMRC (that’s the taxman) effectively gives you back all the tax paid on the money you’re saving into the plan.
Also your pension fund is free of income tax and capital gains tax.
When it comes to retire, you get a quarter of your pot as a tax free lump sum.
If you tried an alternative way of saving you would normally be subject to taxes which could knock you back significantly.
Furthermore your savings are invested leading to dramatic benefits from Compound Interest.
The cons are that the your pension’s investment portfolio might not have performed very well. In other words it didn’t grow as much as hoped for and you are left with less than expected.
When the annual charges are taken off your pension fund every year you could even end up with less than you put in! In some extreme cases, this can be zero!
Can you have more than one personal pension?
You can have as many personal pensions as you like provided that added together all your payments / contributions plus any to an occupational pension do not exceed your annual limit of £255,000.