Personal Pensions
Personal Pension Plan and Stakeholder Pension Plan
A Personal Pension Plan or Stakeholder Pension Plan is essentially a savings plan with tax advantages. These plans are available to any UK resident under the age of 75 and are usually provided by insurance companies and investment houses. They are referred to as 'defined contribution' plans because the plan holder contributes to a plan and, as a result, a fund is built up over a period of time. At retirement the fund is converted to pension income.
Since the changes to legislation in 2006 there is considerable scope to make contributions to pensions and gain valuable tax relief at the plan-holders highest marginal tax rate and even those who do not have any income can make contributions of £3,600 per annum and receive tax relief at basic rate.
At the point of retirement the plan holder will be entitled to take part of the fund as a tax free cash sum (referred to as Pension Commencement Lump Sum) and exchanges the remainder of the fund for a form of income in retirement. Essentially, there are two different ways to convert a pension fund to income although there a number of options available with each of these methods.
The two different forms of pension income are:
(i) Secured Pension - income is secured through annuity purchase which can guarantee income for life
(ii) Unsecured Pension - (often referred to as Income Drawdown) a more flexible form of income but without guarantees
The policyholder can retire at any age between 55 and 75 and the income does not necessarily have to be arranged with the same company used to build the retirement savings
A Personal Pension Plan or Stakeholder Pension Plan is essentially a savings plan with tax advantages. These plans are available to any UK resident under the age of 75 and are usually provided by insurance companies and investment houses. They are referred to as 'defined contribution plans' because the plan holder contributes to a plan and, as a result, a fund is built up over a period of time. At retirement the fund is converted to pension income.
Since the changes to legislation in 2006 there is considerable scope to make contributions to pensions and gain valuable tax relief at the plan-holders highest marginal tax rate and even those who do not have any income can make contributions of £3,600 per annum and receive tax relief at basic rate.
At the point of retirement the plan holder will be entitled to take part of the fund as a tax free cash sum (referred to as Pension Commencement Lump Sum) and exchanges the remainder of the fund for a form of income in retirement. Essentially, there are two different ways to convert a pension fund to income although there a number of options available with each of these methods.
The two different ways to take income in retirement are:
(i) Secured Pension - income is secured through annuity purchase which can guarantee income for life
(ii) Unsecured Pension - (often referred to as Income Drawdown) a more flexible form of income but without guarantees
The policyholder can retire at any age between 55 and 75 and the income does not necessarily have to be arranged with the same company used to build the retirement savings