Personal Pensions

Personal Pensions are private individual plans that you can pay into yourself.  Your employer can also pay into your plan but they might prefer you to join their Group Personal Pension if they have one.

Even if you join your employer's plan you can still take out your own Personal Pension as well. 

You decide how much you want to contribute. If you are not sure how much you need to do first go to the Budget Checklist and then the Pension Calculator After receiving and reading through a quotation and key features you would complete an application form with the chosen pension provider. Your contribution is invested every month (you can also invest lump sums at any time).

You should review your Personal Pension contribution regularly (at least every year).  At retirement (any age after 55 ) you then take your benefits.  A tax free cash sum is available up to 25% of the fund you have built up.

The remainder has to buy you, and(optionally), in the event of your death, your widow/widower, a pension for life. This is done by buying an Annuity or applying Pension Drawdown.  At this stage you will probably need advice from an IFA or a specialist annuity provider.
Q How much can I contribute to a Personal Pension?

A  Up to 100% of your earnings. If your earnings are less than £3,600 a year (including zero) then a contribution up to that amount may be made.


   Earnings £50,000pa - max contribution £50,000
   Earnings £2,600pa - max contribution £3,600
   Earnings NIL - max contribution £3,600

Q  Is there an annual allowance cap?

A Yes, £50,000 (£40,000 for 2014/45). This is from all sources, employer and employee.


Q  Can I carry forward unused relief?

Yes for the previous 3 tax years.


Q What is the maximum pension fund that I can build up? 

The Lifetime Allowance(LTA) is £1.5million for 2013/14 (£1.25million for 2014/15).


Q What if my fund gets beyond the LTA? 

A The benefits in excess of the LTA will be taxed at 55%.

Q How much tax free cash can I take?

A Up to 25% of the fund. The remainder must buy a pension.


Q What is the minimum age I can take my Personal Pension?

A Age 55. You may also continue working and take the benefits.


Q What happens if I die before retirement?

A The pension fund - i.e. the contributions plus the growth plus any pension term assurance, up to the LTA will be paid tax free to your appointed beneficiary. Any excess over the LTA  will be taxed at 55%. Alternatively a spouses pension can be bought by the spouse.


Q How many Personal Pensions can I take out?

A As many as you like so long as you don’t exceed the annual allowance each year.


Q If I am a member of an Occupational Pension Scheme can I also take out a Personal Pension?

A Yes, so long as the total contributions do not exceed the annual allowance.


Q How do I get Tax Relief

A You make your contribution after deducting basic rate (currently 20%) tax.

e.g. gross contribution


Amount you pay to pension provider


The personal pension provider then reclaims the difference between the gross contribution and the amount you pay – in this case £20 – from the Inland Revenue and adds it to your plan.


Q What about higher rate tax relief?

A If you pay tax at 40% or 45% then you would reclaim the difference between your highest rate and the basic rate of 20% i.e. 20% or 25% from your local tax inspector who will adjust your tax coding to compensate you. 


Q Can I keep my personal pension going if I am not earning?

A Yes. Contributions up to £3600 gross pa may be made without any earnings .

This means that low and non earners will, regardless of their income be allowed to contribute up to this much.


Q How do I know how much my pension plan is worth?

A Your pension provider can supply you with this information at any time.


Q If I have a choice of investment funds, which should I take?

A It depends on your attitude to risk. If you have a moderate attitude to risk you may prefer the Managed Fund. For higher risks you can choose one or more of the international funds e.g. North America, Japan, Far East, Europe. 

If you have a more cautious attitude to risk or you are close to retirement a Cash Deposit Fund or Gilt Fund may suit. Where possible you should seek advice.

Some providers now, at an extra charge, provide access to external specialist funds which are sometimes worthy of consideration. 


Q How much should I be paying into my Personal Pension?

A As much as you can afford to achieve your desired retirement income! For a more precise figure try the Pension Calculator.


Q If I take out a Personal Pension will it mean any state benefits are reduced? 

A No. State Pensions are currently not 'means tested'


Q I am a member of a Group Personal Pension Plan (GPPP) – is this different to a Personal Pension Plan?

A No.  A GPPP is still a Personal Pension Plan and has all the same rules as a PPP.

The only difference is that contributions are (usually) also paid by the employer and, the employee contributions are deducted from pay by the employer and paid collectively for all employees to the provider. There may also be a difference in charges.


Q Why can’t I take all my pension in cash?

A Because the object of pension is income. The government allows the valuable tax reliefs on pensions so that you become income self sufficient and not reliant on the state .  You may of course take a tax free cash sum as a part benefit.


Q What is a Self Invested Personal Pension (SIPP)

A As the name suggests this is a personal pension that allows the pension holder to control the investments directly .

There are strict Inland Revenue guidelines as to permitted investments but commonly SIPPS are used by those who wish to invest in stocks and shares of their own choosing or in a commercial property often used by the company or firm owned by the pension holders. Independent Financial Advice is required.


Q Can I add life cover to my Personal Pension?

A No. Life cover has to be taken out seperately.


Q What is Carry Back?

A This is the term that was used to describe the making use of unused pension relief for the previous tax year.

Carry back was abolished on 31st January 2006 except for Retirement Annuity Contracts(pre 1988 personal pensions) for which carry back ended 31st Jan 2007(for contributions made by 5th April 2006). 

Q What if I cannot pay my Personal Pension contributions due to illness or injury?

A You can in some cases take out Premium Contribution Insurance.


Q Is a Personal Pension the same as a Stakeholder Pension?

A Identical in all important respects but a Stakeholder has some small differences such as lower limits and maximum limits on charges.



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