Personal or Private Pensions

The earliest versions were Retirement Annuity Policies or S226 Policies.  These were replaced on the 1st July, 1988 by Personal Pension Schemes.

It is possible to opt to transfer benefits from Occupational Schemes to private arrangements such as a Transfer Policy (S32 transfer plan) or a Personal Pension Plan.

Specialised individual plans include Self Invested Personal Pensions and Free Standing Additional Voluntary Contributions (FSAVC).

Personal Pension Plans have been available since July, 1988.  All Personal Pensions are based on the 'money purchase' principle, i.e. pension contributions accumulate with interest and capital appreciation within an individual fund, which is used to purchase a pension at retirement.  The amount of the eventual benefit is thus dependent upon the contributions paid, the investment performance of the fund, expense deductions and the financial conditions at the time benefits are secured.

Contributions into Personal Pensions are restricted to a percentage of 'net relevant earnings' and contributions attract tax relief at the marginal rate of tax.  Self employed people pay the contributions gross and make a claim against the premiums in their annual tax return.

The maximum contributions allowed by the Inland Revenue also depend on your age as indicated in the table below

The earliest type of Personal Pensions had a number of methods of applying high charges.  This meant they could be very bad value for money if premiums were not kept up until the original proposed retirement date.  (See Pension Charges).  Some of them particularly Retirement Annuity Policies (RAP's), had some good guarantees included in them.  It is therefore important that not to just switch to a new style plan with lower charges without carefully considering what advantages there may be in any existing policies you may have.

There may be life cover or Waiver or Premium cover included and it may not be possible to replace these in the new style plans.  In addition Guaranteed Annuity Rates guaranteed growth rates.  No such guarantee is now available.

The new Stakeholder Pensions have a number of advantages and also some disadvantages.  However, the principle points are that only one type charge can be made which is an annual management charge of less than 1%.  The old charges of a Bid Offer Spread, and Allocation percentage of less than 100% and a monthly or annual Policy Fee will not be allowed.  In addition there will be no Transfer Penalties or Early Retirement Penalties.  Premiums can be reduced or suspended and then recommenced without any penalty.  The minimum contribution will be £20.00 as a regular or single premium.