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Personal Pension Plans

Personal pension plans have been available since July 1988. They allow you to build up a fund that you can use to provide benefits in retirement.

personal pension plansThe fund created by a Personal pension is based on the contributions received and - as such - this type of plan is commonly referred to as a defined contribution arrangement.

Tax Relief

As with other pensions, if you invest in a personal pension, you will benefit from tax relief on your contributions.

How this works is that you make your contribution net of basic rate tax but the gross amount is credited to the plan. So, for example, if you make a net contribution of £80, £ 100 will be credited. This is known as Pension Relief at Source (PRAS). It is important to note that you are entitled to tax relief at your highest marginal rate so, if you are a higher or additional rate taxpayer, as an employee you can claim the extra relief through your tax return or, if you are self employed via self assessment.

Employer Sponsored Personal Pensions

If you are a member of an employer sponsored scheme the way in which contributions receive tax relief is slightly different. Basically, the gross payment is deducted from your pay before tax is applied. The benefit of this approach is that, if you are a higher or additional rate taxpayer you will receive relief at your highest marginal rate immediately. Contributions made by an employer into your personal pension are made gross and are deductable as a business expense.

Limits on Contributions

You may be aware that there is a limit on how much you can pay into your pension and still receive tax relief. The maximum that can be contributed is the greater of £3,600 gross per annum and up to 100% of earnings. There is also an annual allowance in place which caps contributions at £50,000 (this includes both employee and employer contributions).

As you can imagine, the majority of people are unaffected by the limits.If you are in the fortunate position of being able to contribute more than £50,000 there is the possibility that unused relief from previous years can be carried forward to allow this.

Once invested your funds benefit from growth in a tax efficient environment and, on electing to retire (you can take your benefits from the scheme from age 55 onwards), you are typically able to take up to 25% of the accumulated fund as a tax free lump sum.

Personal Pensions and the LGBT Community

Most personal pensions are non-discriminatory, allowing you to nominate who you want to benefit from your pension in the event of your death. This means that people in same sex relationships can nominate their partner, whether they are in a civil partnership or not.

Most people do not save enough in pensions

Moving away from the technicalities, it is a fact that the vast majority of us are not saving enough to provide for the lifestyle we would ideally like to lead in retirement. This is a real problem as life expectancy increases and with it the requirement for more income and capital in retirement.

Setting up a Personal Pension for Others

Finally, remember that you can set up a personal pension for a non working partner or for children or grand children. If you would like to speak to an LGBT-friendly financial adviser about personal pensions or any other financial matter, please enter your postcode under the map on your right to find an adviser near you.

Additional Reading

  • Property as a Pension

    Thought about using property as a pension for your retirement? If you are, why not read our guide and contact us to speak to one of our advisers.
  • Inheritance Tax Planning

    Have you done any Inheritance Tax planning at all? Do you know why it's so important and the implications if you don't? Then start finding out right now exactly what it means for you.
  • New Land Transaction Tax in Scotland

    Stamp duty is being abolished in Scotland and is going to be replaced by a new land transaction tax. Find out what you need to know about this change.
  • New Rules on Personal Pensions

    Read about the how the new rules on withdrawing money from your personal pension affect you,
  • A Guide to Personal Finance

    A simple guide to personal finance and saving money with handy tips and links to key sections of our website. Find an LGBT-friendly financial adviser to advise you.

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