Personal pension plans
Personal pension plans are intended to provide a tax efficient way of saving money for retirement. They are approved by the government for favorable tax treatment to persuade individuals to make private retirement arrangements in order to supplement the income they will receive from their state pension.
Personal pension plans (PPPs) are money-purchase pension arrangements, in which your money is invested to construct your pension fund. Most PPP providers expect you to produce payments on a regular basis (normally once a month), and many also permit you to make single one-off payments into your pension plan.
Tax Relief on Personal Pensions
The money you provide into an approved PPP in the UK draws tax relief from the Government at your highest marginal rate of tax, and contributions are paid into these schemes net of basic rate tax. Currently, each £80 that a basic-rate tax payer contributes to his or her personal pension scheme, the Government will pay an additional £20 straight to the pension scheme. Higher-rate tax payers at present get 40% tax relief on their pension contributions, 20% of this is received directly at source when they pay into their pension plans, the further 20% has to be applied for by means of their local inspector of taxes.
Pension Fund Investment
Your money is then invested in the fund, or funds, of your preference, for example in stocks and shares, where it develops in a highly tax efficient environment free from capital gains or corporation tax (however dividend credits cannot be reclaimed by the fund.)
You can choose to invest in an extended range of funds within your personal pension plan. Each fund will have a specific investment objective and risk profile to fit different requirements.
How many pension schemes can you have?
You may join any type and number of pension schemes at any time.
The stakeholder pension is a type of personal pension that is subject to certain conditions. Stake holder pensions may be offered by your employer or taken out individually. For more details read about stakeholder pensions.