Information in this section explains the rules of personal pensions and your rights. There is further guidance on choosing a personal pension (e.g. stakeholder pensions).
PERSONAL PENSIONS: As a rule, there will be an age limit on when you can take a personal pension.
Even so, personal pensions tend to have a lot of flexibility. This is partly because you will arrange your own personal pension - in most cases.
Personal pensions are usually based on how much money gets paid into the 'pension pot'. This is why they are also called 'money purchase' or defined contribution pensions.
Note: It is not uncommon for employers to offer workplace pensions in the form of personal pensions.
A pension provider invests the money paid into a personal pension. In most cases, these investments form part of a larger shares fund. Thus, there is no guarantee of the amount you will get when you take the pension.
The money that accrues in a personal pension (the fund) depends most on three basic factors:
There are several different types of personal pensions available in the United Kingdom. The popular ones include:
You can search the Financial Services Register through the Financial Conduct Authority. This is an easy way to check if your pension provider has registered with the FCA. Use the Pensions Regulator if yours is a stakeholder pension.
There are several ways to make payments to a pension provider. They allow you to make an individual lump sum or smaller regular payments.
Either way, they send out annual statements to inform you the value of your fund.
Most pension schemes registered with HM Revenue and Customs get some relief on taxation. HMRC give tax relief on private pension contributions.
Note: You cannot get this tax relief if your scheme is not registered.
Do some research before you choose one of the hundreds of personal pensions on the market. Choosing the best pension for retirement income can often be confusing. So, here are a few pointers to consider:
There are several ways to find an independent financial adviser. You can contact 'Unbiased' or the 'Personal Finance Society'. But, there may be a fee for this advice.
Very few personal pensions allow you to take money from them before reaching the age of 55. Your pension provider will confirm the age limit if you are unsure when you can take cash from the pension.
As a rule, you can take out an initial tax-free lump sum of the money built up in the pension pot. There is no tax payable on the first 25%. But, you may need to pay tax on the remaining 75%. You must start taking the 75% within 6 months of the first withdrawal.
There are several different options for taking the rest of the pension pot. You can either:
You will need to confirm what options are available with your particular pension. Some providers may not offer them all. You can choose to transfer a pension pot to a different provider if you prefer.
The pension provider deducts any tax owed to HMRC before you receive the money from your pension pot.
Some pension providers will charge a fee for withdrawing cash from the pension pot. You should check this with your particular provider.
Note: Taking large amounts can result in paying higher rates of income tax. In some cases, there may also be extra tax owed at the end of the tax year.
Some insurance companies offer annuities. An annuity provides regular payments for life. In some cases, your provider can pay for an annuity out of your accumulated pension pot.
Annuity payments vary due to several factors. It generally depends on how long the insurance company expects the policy holder to live. That usually determines how many years they will need to make payments. When the company calculates the amount they will consider:
There are several different kinds of annuity policies. Some have a fixed time (e.g. payments for 10 years instead of a lifetime). Other continue paying a spouse or a partner after the policy holder dies.
Note: You are not compelled to buy an annuity from a pension provider.
Some pension providers will be able to invest a pension pot in a flexi-access drawdown fund. The fund from a flexi-access drawdown means you can:
The money stays invested in a 'capped drawdown' fund if you want to keep it. Even so, you can continue withdrawing and paying money in.
The pension provider will set a maximum amount you can take out every year. The upper limit gets reviewed every 3 years until the holder turns 75. It then gets reviewed every year after that.
In some cases you can take cash 'directly' out of your pension pot. This means you could:
There may be situations when you cannot take smaller cash sums. As a rule, it will be if any of these apply:
The pension provider would be the first point of contact for help with a personal pension. Following that, The Pensions Advisory Service give free advice on pensions. But, they do not give financial advice.
The company 'Unbiased' can help you find a financial adviser but there is usually a fee to pay for their services.
Contact Pension Wise for expert information about personal pension options. Those who are over 50 can book a free appointment. But, Pension Wise do not cover 'final salary', 'career average' pensions or the State Pension.
You should contact the Pension Service for further help with your State Pension.
Talk to your pension provider if you have a complaint about the way your pension scheme gets run. They must respond to you within 8 weeks. You can also contact the Pensions Ombudsman about the same problem.
The Pensions Advisory Service or the Financial Ombudsman's Service can help on the way a pension scheme got marketed to you.
The UK Government introduced stricter protection against pension scams. Bans will now include the use of emails and texts in private pensions cold calling.
What if you believe the pension provider has broken the law? In this case you should complain to:
This depends most on whether the FCA authorised the pension provider. You might get compensation from the Financial Services Compensation Scheme (FSCS) if the provider is unable to pay.
Personal Pensions Your Rights: Choosing a Personal Pension in the United Kingdom