Personal Pension Plans

You do not have to be in employment to take out a Personal Pension Plan and you can also provide a Personal Pension Plan for your spouse/partner or your child/children. The policy reverts to the child/children at the age of 18.

Designed to offer a lump sum and income in retirement, a personal pension is available to any United Kingdom resident who is under 75 years of age. When you contribute to a Personal Pension plan, your money is invested and a fund is built up. The amount of pension payable on retirement depends upon:

• the amount of money you paid into the scheme;
• the performance of the investment fund
• charges payable under the plan
• the 'annuity rate' at the date of retirement. The annuity rate is the factor used to convert the pension fund into a pension.

When you can take pension benefits

The concept of a normal retirement age has disappeared, as have constraints on drawing occupational benefits while still employed by the scheme sponsor, although many schemes may not take advantage of all the extra flexibility. The minimum age for drawing benefits is 55 but benefits no longer have to be drawn by age 75. The government scrapped this upper age limit from April 2011 and introduced a system of capped and flexible drawdown schemes as an alternative to annuity purchase. Further details provided under the section of the website entitled 'Income Drawdown' under Pensions.

No inheritance tax if you die before retiring

If you die before age 75 and you have not started to take benefits from your pension the funds will normally be passed to your spouse or other elected beneficiary free of inheritance tax. Other tax charges may apply depending on the circumstances.

It is possible to continue past age 75 without taking benefits. If you die after age 75 your pension pot can still be passed to a nominated beneficiary free of inheritence tax, however a 55% tax charge will be applied if paid as a lump sum. If it is paid as an income to your spouse or dependent there will be no initial tax charge but any income paid would be subject to income tax.

A pension is a long term investment. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.

The value of your investment and income from it is not guaranteed it can go down as well as up due to fluctuations in investment markets, and you may not get back the full amount invested.

Levels and bases of and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor.