Personal Pensions – Is it Right for You? Are you getting a good deal?

By | Last Updated: 14th September 2019 | This post may contain Affiliate Links

Wanting to find out more information regarding a Personal Pension in the UK? Sometimes this can also be known as an ‘individual’ pension.

A personal pension is usually a defined contribution pension, this basically means you can select which provider to use and have some say in how the money is invested.

Normally it will be invested in shares by the pension provider. From this, your pension pot value can ‘increase’ or ‘decrease’, depending on how ‘well’ the investments are doing. A private pension can be a good way of saving for retirement if you don’t have a workplace pension.

Remember our money saving team are constantly updating our Pension Comparison section, this features the latest ‘deals’ and ‘special offers’ from providers across the United Kingdom. If you’re looking for an individual pension, it’s definitely worth ‘checking out’, you never know you may find yourself a great deal.

How do UK Personal Pensions Work?

Understanding how pensions work can sometimes be confusing, a private pension basically means you’ll ‘build up’ your pot with contributions you make. Your pot can also increase with tax relief and investment ‘returns’.

Generally, while you’re working the pension fund is ‘invested’ into stocks and shares, some providers may recommend other investment products as well. However, this will vary depending on who you choose. The overall aim of the fund is to grow it as ‘large as possible’ before you retire. Obviously, we all want to have a certain standard of living in our retirement, so the investment returns are important.

You’ll be able to select the type of investment; some people invest in a handful while others invest in more. This entirely depends on your preferences and your pension provider. However, it is important to remember that investments can increase as well as decrease. This means you may not get as much as you hope. If you’re unsure about your personal situation, it can be a good idea to speak to an independent financial advisor, they will assess your circumstances and give advice accordingly.

When you retire, you need to remember that the size of your ‘pension pot’ will depend on several things, these include:

  • How long you’ve been saving
  • The amount of money you’ve put in
  • How your investments have performed
  • What charges may be ‘taken out’ by your pension provider

The entire pension scheme was revolutionised in April 2015, this means you now have more ‘choice’ and ‘flexibility’ than ever before. You’re able to decide how and when you can take money from your pension pot.

Frequently Asked Questions

Can I increase payments after starting the plan?
In most cases yes you can, you can typically ‘increase’ the amount you pay at any time subject to the limits that apply. Equally you can normally ‘stop’ making payments if your circumstances change. You’ll need to read your providers terms and conditions to see how this applies to you.

Can I check how my pension is performing?
The majority of pension providers will send you an updated ‘pension benefits statement’ every year. Some may offer ‘six-month’ statements, others may even offer monthly ones. This depends on which provider you select. The statement will normally show the value of your plan and what you may get back, provided certain criteria are met.

What happens if I change job?
This is one of the ‘benefits’ on a private pension scheme, it doesn’t matter if you decide to change employer, become self-employed or leave paid work altogether. You simply ‘take’ your pension with you.

You’ll normally be able to keep making contributions should you wish, if you get a new job or become self-employed. This differs from workplace pensions, as you’ll need to start a ‘new’ scheme with your new employer, meaning over the course of your life you could have multiple workplace pensions with different providers.

What if I die before I retire?
Generally, the full value of your pension plan will be used to provide a cash lump sum for your dependants or beneficiaries. In some cases, it can be used as to provide an income for a dependent or beneficiary. You’ll need to read your agreement to see how this applies to you.

What if my pension provider goes bust?
If you pension provider goes out of business, you’ll need to check if they are regulated by the Financial Conduct Authority. If they are (most good ones will be) then you may be able to get compensation through the Financial Services Compensation Scheme , also known as the FSCS.

How does tax work?
The tax implications of personal pensions will obviously vary from each individual, ‘typically’ your pension provider will claim tax relief at the basic rate. This will then be added to your pot.

This is normally ‘OK’ if you’re on a low income or a lower rate taxpayer, however for higher rate taxpayers you’ll usually need to claim the ‘extra rebate’ through your tax return.

Of course, tax can be confusing and most people can easily get caught out, if you’re unsure please get professional advice from an independent financial advisor or an accountant. It’s much easier for them to assess your situation than trying to ‘work it out’ for yourself. Even if you have to pay, it’s worth the money to get your finances in order.

Why does my pension provider charge money?
Unfortunately, not many things in life are ‘free’, after all your private pension provider will charge for investing and managing your fund. Normally you’ll be able to see details of the fees and the reason for being charged. You may have to pay ‘additional fees’ should you wish to ‘top up’ your pension pot. This of course varies on which provider you choose, some may not charge while others might.

I need help regarding my pension?
You can get ‘free’ information and guidance from the Pensions Advisory Service or Pension Wise . If you can afford to, paying for an independent financial advisor to assess your situation can also be beneficial.