Personal Pensions

As life expectancy increases so too does the need for sufficient retirement provision.
To maintain a standard of living of which one has become accustomed, saving through your working life becomes ever more important as reliance on the state becomes ever more uncertain and inevitable day to day living costs increase.

Unlike some company schemes, all personal pensions work on a ‘money purchase’ basis. This means that the money you save each month, or each year, in your personal pension is invested (typically in traditional investment funds) and this is then used in retirement to provide you with pension benefits. So, in theory, the more you save the better your pension should be at retirement.

Following changes made on 6th April 2006 to pension legislation, these contracts are very flexible and can provide tax relief on contributions of 100% of your earnings, up to the annual allowance of £40,000, whichever the greater.

However, it is worth noting that following the changes made on 6th April 2017, once you start to take your pension income then your annual allowance will reduce to £4,000 and therefore tax relief on contributions will be limited to 100% of your earnings, up to the revised annual allowance of £4,000, whichever the greater. It is therefore deemed prudent to seek financial advice prior to drawing your pension benefits.

At Retirement

Deciding when and how to take your retirement benefits can be a daunting process and without the relevant advice you may find that you pay more tax or receive fewer benefits than you were first expecting.

On retirement you can use the money that has built up in your personal pension to purchase pension benefits, these benefits can be taken in the form of either income or income with a tax free cash lump sum (The Pension Commencement Lump Sum). These pension plans allow flexibility and your fund can remain invested whilst pension benefits are being drawn.

The value of your pension at retirement is mainly dependent upon your level of contributions over the life of the plan, investment performance and the age from which you wish to draw benefits (currently pension benefits can be taken from the age of 55). So, a personal pension is really just a long-term saving plan, in a tax efficient wrapper, designed to produce a fund and level of benefits at retirement.

However, pension provision can be complex and the decision of when to draw benefits and at what levels are not to be taken lightly as the initial decision can impact heavily upon the remainder of your retirement. It is therefore recommended that advice be taken prior to drawing pension benefits in order to minimise the negative impacts of your decision whilst maximising the potential for efficient retirement planning.

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