What is a personal pension?

A personal or private pension is a way of financial planning for your retirement. Each month, you’ll contribute an amount to your pension, which you’ll arrange with a personal pension provider like True Potential Investor. You can also make ad hoc contributions as you see fit.

Usually, the money you invest is put into stocks, shares and other investments with the aim of increasing your overall funds ahead of your retirement. You can control where your money is invested, as well as the associated level of risk that you are comfortable with.

For each contribution you make, your pension provider will claim tax relief at the basic rate and add it to your overall pension pot. Higher and additional rate tax payers are usually able to claim more via self-assessment to HMRC.

By retirement, you should have a sizeable pension pot that you can use during retirement. However, the amount you accumulate will depend on the following:

  • The length of time you have saved for.
  • The amount you have paid in.
  • The strength of your investments.
  • Any charges from your personal pension provider that may be deducted.

Once you retire, you can:

  • Leave your pension pot untouched to continue to grow.
  • Access 25% of your pot tax-free.
  • Purchase a lifetime annuity, which pays a regular salary for the rest of your life.
  • Use drawdown to take a regular taxable income.
  • Access small cash amounts and leave the remaining pot to grow.
  • Access all of your pot as cash — the first 25% is tax-free and the remaining 75% is taxed at your highest rate. You may face additional tax charges if the amount in your pension pot exceeds the lifetime allowance. This isalso known as the lifetime allowance charge.
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