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Saving Towards a Pension
Other Types of Pensions
Unit Trusts
Investment Trusts

PENSION

Personal Pension

(Also called Self-Employed Pension)

A means of saving towards a pension starting between ages 50 and 75 if you are self-employed or are an employee not in a job pension scheme. You can take 25% of the accumulated pension fund as a lump sum when you start the pension. Personal Pensions can be linked to a Unit Trust or OEIC including an Index Tracker Fund, or to an Investment Trust. It can also have bonuses added, like Life Insurance With-Profits Endowment Policy or be linked to a unit fund in a life company which is not a unit trust or OEIC, like Life Insurance Mixed Bond or like Life Insurance Property Bond or it can give a fixed return, sometimes called non-profit.

Who can invest The self-employed or employees not in a job pension scheme or who wish to leave a job pension.

How worthwhile Good value for taxpayers who want a pension and lump sum starting at age 50 (55 if you were born after 5 April 1960) to 75. Compare with a Stakeholder Pension. Consider schemes as follows: 5 yrs or less to retirement, non-profit or cash fund; 6-10 yrs, with-profits or cash fund; 11+ yrs plus a fund linked to a unit trust index tracker fund or an investment trust linked fund. Life insurance company plans tend to have high charges.

Minimum Virgin Direct: £1 any payment. Single stand alone: £250-£2,000. Single addition to a regular plan: £100-£250. Regular: £25, £50, £100 a month.

Maximum From 6 April 2006 you can pay up to the full amount of your salary to all your pension schemes. For the current contribution limits click here.

Suitable Lump sums. Regular savings.

Money back As a lump sum and pension starting between ages 50 and 75 until you die (or with a guaranteed period of, say, 5-10 years). You are now able to cash part of the fund early, called drawdown, but this will be taxed as income. Widows pensions are available. If you die before you start the pension, the value of the fund or your contributions with interest, depending on the company, is returned.

Interest Variable except non-profit schemes where return fixed at the outset. Income is accumulated.

Interest paid When policy matures mostly as a pension. See also Money back above.

Tax No tax on the lump sum nor on the interest or capital gain accumulated. Contributions get full tax relief, see table of contribution limits. Basic rate taxpayers pay 22% tax on pensions in payment; higher rate taxpayers pay 40%.

Fees to pay Charges are deducted in different ways and can be very high. Check before you invest. Reductions for large contributions from some companies but not usually from the companies listed below because these already have the lowest charges for everyone.

Passbook Pension contract. Statements.

Children Not usually eligible.

Risk Depends on the investment to which the policy is linked. UK life companies have The Policyholders Protection Act. Unit Trusts have, The Investors Compensation Scheme.

How to invest For more advice on pension planning see Saving Towards a Pension. Ask an independent financial adviser, preferably a fee based one, or go direct to at least three of the companies listed below for quotes. For the lowest charges use a tracker fund from the chosen company.

Where from Companies with low charges include: Investment trust: Alliance Trust. Life companies and unit trusts: Legal & General Direct, Marks & Spencer, Prudential, Scottish Widows, Standard Life. These make the lowest charges; you can check at the FSA comparative tables for people of different ages, different retirement ages and types of policy.

Other Types of Pensions
Saving Towards a Pension
Unit Trusts
Investment Trusts

Last updated 23 June 2008.