What is a Personal Pension?
8 Feb 2024
A personal pension, sometimes known as a private pension, is a type of savings plan designed to help you save for retirement. It is a product you can set up and manage yourself. The amount you have at retirement will hinge on how much you contribute and how those contributions are invested over time.
How Do Personal Pensions Work?
Unlike workplace pensions, which are arranged by employers, a personal pension allows you the freedom to choose and manage your plan. You can pick from a variety of pension funds, where professional money managers will invest your savings in different assets. This setup grants you the control to make regular or one-off payments into your pension. Additionally, your pension provider will boost your savings by claiming tax relief on your contributions.
When you retire, typically any time from the age of 55 (57 from 2028), you can decide how to use the funds from your personal pension. There are several options available, and each can cater to different needs and goals.
Tax Relief on Personal Pensions
When investing in a personal pension, you gain the advantage of tax relief. For example, if you contribute £100, the government adds an extra £25, elevating your total investment to £125. If you're a higher or top rate taxpayer, you can claim even more back through your tax return. For the fiscal year 2024/25, you can receive this relief up to the smaller of 100% of your salary or £60,000.
Who Needs a Personal Pension?
Both personal and workplace pensions are excellent supplements to the state pension, the latter of which has a maximum disbursement of £11,502.40 per year as of 2024/25. While it's often beneficial to enrol in a workplace pension due to employer contributions, having a personal pension is also wise. This is especially true if you're self-employed, opted out of a workplace pension, or if you want to diversify your retirement savings.
Penny’s Personal Pension Plan
At Penny, we simplify the process of managing your retirement savings. Not only can we help consolidate your old workplace pensions into a single personal pension plan, but we also offer an easy-to-use app that allows you to view and manage your pension anytime, anywhere. With Penny, planning for retirement is straightforward and stress-free.
Choosing the right pension could greatly influence your financial security in retirement. While personal pensions offer flexibility and potential tax benefits, it's always good to consider all your options. Explore various pathways and, if needed, consult with a financial advisor to make informed decisions about your retirement planning.
