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Personal Pensions

Your pension pot builds up in line with the contributions you make, investment returns and tax relief. The fund is usually invested in stocks and shares, along with other investments, with the aim of growing the fund over the years before you retire. It is important to remember that the value of investments can go up and down.

All investment growth in a pension is tax free, they come with significantly higher limits than ISA’s, which are a maximum of £20,000pa, so pensions carry some huge tax advantages for savers over the long term.

When you retire, the size of your pension pot will depend on: how long you have saved for, how much you paid in, how well investments have performed and what charges you have paid to your pension provider.

Pension freedom, introduced in April 2015 means you now have more choice and flexibility over how and when you can take money from your pension pot. You have several options when you reach 55 to decide how you would like to use your pension.

Some personal pension plans which were opened before April 2015 may not have options such as flexible drawdown available within that particular plan. It does not mean that these options are not available to you. However, you may need to switch plans to be able to access some of these options.

It is best to speak to an adviser before making any changes to your pension plan; an adviser can help you weigh up the benefits of switching and help to avoid any pitfalls.

Tax relief

One of the benefits of a personal pension is that you can claim tax relief at the basic rate. Your pension provider will claim the tax and add it to your pension pot. Higher & additional rate taxpayers can also then claim the additional rebate through a tax return.

Investment

Part of choosing a personal pension is the option to decide where your pot is invested. Different providers can offer different investment strategies which offer varied rates of investment. The rate of return is often dependent on the level of risk you are willing to undertake. It is important to understand that risk and return go hand in hand, you need to understand the potential losses involved with your investment selection.

If you are looking to set-up a personal pension, a financial adviser can help choose the right investment opportunity for you and also help you decide what level risk you are comfortable taking.

Workplace Pensions

If you change jobs or are offered a workplace pension, you can continue to pay into your personal pension if you wish. You may find it better to join a workplace pension scheme, especially if your employer contributes. If you decide to stop paying into a personal pension, you can leave it to carry on growing. A pension adviser can help you to review your personal pension with a workplace pension and compare the benefits.

Self Employed Pensions

If you are self-employed, saving for a pension can be more difficult. There are 4.8 million self-employed people in the UK, accounting for 15% of the UK workforce, just 31% of the self-employed are saving into a pension.

Most self-employed people use a personal pension and make regular contributions themselves. The pension provider will claim tax relief at the basic rate of tax on your behalf and add it to your pension savings.

If you own your own Ltd Company a pension contribution carries Corporation tax relief benefits for business owners looking to save for retirement. A pension can also act as a useful vehicle for business owners to buy their business premises via a SIPP or SASS. Speak to one of our independent advisers for further information.

Saving into a pension can be a difficult habit to develop. Unlike a workplace pension, there is no-one to choose a pension scheme for you, no employer contributions and irregular income patterns which can all make saving difficult. But preparing for retirement is crucial. If you are self-employed, one of our advisers can help you to work out the best option for you.

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Using Your Pension Pot

Pension Freedom, introduced in April 2015, means that once you reach 55 and have a personal pension or workplace pension (defined contribution scheme), you are free to use your pension how you like. You are now free to tailor when and how you use your pension to fit with your planned retirement. 

There is a lot to weigh up when working out which option or combination is best for you. It is essential to seek advice when planning your pension to ensure you do not run out of money.

FLEXIBLE ACCESS DRAWDOWN

With flexi access drawdown, you can take up to 25% of your pension pot as a tax-free lump sum. You are then free to invest the rest and draw out a regular income. You are free to set the income you want and can set higher or lower income depending on your circumstances. However without careful management, there is a risk of you running out of money. Our advisers create a retirement plan for you which allows you to get the retirement you want and reduce the risk of running out of money.

ANNUITY 

An annuity is a type of pension product that you buy with part or all of your pension pot. It provides you with a regular income until a set time or until you die. With an annuity, you can still withdraw up to 25% of your pot as a tax-free lump sum, then with the remainder buy an annuity. An annuity gives you a guaranteed taxable income for life, the amount you get depends on the size of your pot and current annuity rates. There are different lifetime annuity options and features to choose from that affect how much income you would get.

SELF-INVESTED PERSONAL PENSIONS (SIPPs)  

With a standard personal pension, you can invest your pension within a pooled fund of your choosing. A SIPP is a form of personal pension that allows you to manage your own investments. Pension freedoms mean you can now access and use your pension pot from the age of 55. Most SIPP’s allow you to invest your money into a range of different assets. SIPP’s are not recommended for everyone, and it is essential you receive advice before thinking about this type of personal pension.

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