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Guide to UK Pensions

Personal or Private Pension Schemes

If you don't have an employer pension scheme, are self-employed or want to increase your pension further, personal or private pension schemes can be a good option. Personal pensions can offer a wider range of investment choices and flexibility not always offered by State or some Occupational schemes.

UK Pensions

Whereas state and employer pension schemes are set up and managed on your behalf, personal pensions can be set up directly by you and/or your financial adviser. Personal or private pension schemes are offered through providers such as Insurance companies, Finance companies, Banks and Building Societies etc. The three main types of personal pensions are outlined in the table below:

Personal Pensions Description
Personal Pension These are money purchase schemes, which build up a pension fund using your contributions, investment returns and tax relief. You select a pension provider, either directly or via an independent financial adviser, then arrange to pay contributions and choose from the range of investment options on offer. They can offer more flexibility i.e. draw pension any time between 55-75 years, and have flexible contribution and investment options. The final amount of the pension fund is dependent on:

  • how much you pay into the fund
  • how well your investments have performed
  • what charges have been taken out of your fund by your pension provider.
Charges for managing schemes vary depending on who you use. Your investments are managed for you within the pool of funds you have chosen.

Stakeholder Pension

Similar to personal pensions but these must meet minimum standards set by the Government, including:

  • limited charges
  • low minimum contributions
  • flexible contributions
  • penalty-free transfers
  • a default investment fund, i.e. a fund your money will be invested in if you don't want to choose one
Self Invested Personal Pensions (SIPPS) A money purchase scheme for people who want to manage their own pension fund, dealing with, and switching investments for themselves. These often have a wider range of investment options and higher charges than other personal pensions. More suitable for large pension funds and experienced investors. Alternatively you can pay for an authorised investment manager to make the investment decisions for you.

You can also top up personal and stakeholder pensions and some occupational schemes by making extra contributions via:

  • Additional Voluntary Contributions (AVCs) - by paying contributions into a scheme run by your employer to boost your main pension.
  • Free-Standing Additional Voluntary Contributions (FSAVCs) - separate from your employer’s pension scheme and normally run by an insurance firm.

Most pension schemes will provide you with a statement each year showing your contributions so far and projected (estimated) pay out figures at future dates.

Although you know exactly what your contributions will be with a personal pension scheme, you won't know what your final pension amount will be, it can't be guaranteed because investments can go up or down. Because of this element of risk it is recommended you seek the assistance of an independent financial adviser who is a pension specialist, unless you are an experienced investor yourself. Independent financial advisers can help you work out what will be enough for you to live on in your retirement taking into account:

  • Your current age
  • Your current finances
  • Your employment status and prospects
  • Any other pension schemes or savings you have
  • Your long term financial requirements

They can identify which type of pension scheme and which provider will be best for your needs.

It is also very important to ensure the provider you select is regulated by the Financial Services Authority.

PDF Guides Download the UK Pension PDF Guide here - see our other free PDF guides here

Guide Contents

What is a Pension?
Why do you need a pension?
State and other types of Pension Schemes
Company or occupational pensions offered by Employers
Personal or private pension schemes
Shopping around for a personal pension scheme
Pension FAQs
Where can I go to get more help?

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