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A Personal Pension Plan (PPP) is simply a long-term savings vehicle with tax advantages. The aim is build a large a fund as possible which will provide an income in retirement and a tax free cash lump sum.
HOW MUCH CAN I PAY INTO A PERSONAL PENSION?
The maximum that can be paid into a personal pension plan is based on your age at the 6th April and are shown in the following table.
Age at 6th April Percentage allowed against total taxable income
35 or less 17.50%
36 – 45 20.00%
46 – 50 25.00%
51 – 55 30.00%
56 – 60 35.00%
61 – 74 40.00%
The maximum contributions allowed, as shown above, include your own and any employers contributions.
However under new rules you can contribute £300.00 per month if this is greater than the amounts in the above table.
HOW CAN MY CONTRIBUTIONS KEEP PACE WITH INFLATION?
From outset you are able to select an automatic premium increase option.
HOW DO I CLAIM MY PERSONAL INCOME TAX RELIEF?
The pension provider will claim basic rate tax relief on your behalf from the Inland Revenue.
For example, a £200.00 per month contribution will attract £56.41 tax relief thereby increasing your contribution to £256.41 per month.
Higher rate taxpayers, can claim additional income tax relief at the marginal rate. It is not possible for the pension provider to collect this additional amount. Therefore you would need to contact your Accountant or the local inspector of taxes.
CAN I MAKE SINGLE CONTRIBUTIONS?
You can make a lump sum payment into your pension any time subject to Inland Revenue limits.
DOES THE FUND I INVEST INTO GROW FREE OF TAX?
The contributions are invested in a fund that accumulates free of UK tax on investment income and capital gains, although it is no longer possible for pension funds to claim the 10% tax credits on dividends from UK equities.
Nevertheless, the favorable tax environment is still a significant investment advantage.
CAN I STOP MY CONTRIBUTIONS?
The pension that I have recommended allows you to permanently or temporarily stop contributions without penalty, and be started again at a later date. They can also be permanently or temporarily reduced to a lower level.
WHEN CAN I TAKE MY PENSION?
At any age between 50 and 75 years of age.
HOW ARE MY BENEFITS PAID AT RETIREMENT?
Part of the pension can be taken as a tax-free cash lump sum at retirement. This sum must not be more than 25% of the total fund; the balance of the money is used to provide you with an income for life known as an annuity. So if the value of your fund at your chosen retirement age was for example £200,000, you could take £50,000 tax-free and the balance of the fund would be used to provide you with a monthly income for the rest of your life.
WHAT ARE MY PENSION OPTIONS AT RETIREMENT?
At retirement you will have a number of options as to how you are paid your pension income, these can include:
A pension paid to you for life with payments continuing to a spouse at 100%, 66% or 50% on death.
A pension that increases each year in payment, this is known as escalation.
A pension that is guaranteed to be paid out for 5 or 10 years whether you are alive or not.
These choices can be made through your pension provider or with an alternative company, known as an “open market option.”
CAN I TRANSFER MY PENSION PLAN VALUE WITHOUT PENALTY?
Yes and no. This depends on the pension provider. More modern plans tend to have no penalties but older oplans ten to.
WHAT IF I DIE BEFORE RETIRING?
In the event of your death before retirement the full fund value including all the contributions made, the tax relief and the investment growth will be refunded to a beneficiary of your choice.
You should look for a pension with the following features:
Retirement can be at any age between 50 and 75 without penalty.
A company with a superior financial credit rating.
Flexibility regarding your contributions.
The early transfer values shown on the illustrations are high.
100% premium allocation rate on contributions.
The paid up values are high.
There is no discontinuance charge if you wish to stop premiums.
The plan can be converted to a pure stakeholder pension without penalty.
The plan can be transferred to another provider without penalty.
They have demonstrated good historic fund performance.
There is a wide choice of fund managers.
Service levels are good.
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