Personal Pensions

Personal pensions, also known as private pensions, offer you the opportunity to invest in your future by saving a certain amount of your income in a pension savings scheme. This scheme keeps track of the contributions you have made and will usually invest these in order to ensure you have a reasonable pension fund when you come to retire. The contributions are invested until you reach retirement age, and are usually unavailable beforehand. When you retire you are able to use the fund you have built up to buy an annual pension, known as an annuity (see Annuities). You may also be entitled to receive a percentage of your pension fund as a tax-free lump sum on retirement. All personal pensions operate in this way and are thus known as money purchase schemes.

Personal pensions offer many advantages for savers. You are often able to be involved in the way in which your pension fund is invested, and may be able to choose specific stocks and shares in which to invest. You can pay into a personal pension whether you are working or unemployed, and other people can contribute to a personal pension scheme on your behalf, enabling relatives to help you save for the future. You are also entitled to tax benefits for saving for retirement: see Tax Incentives for Saving. Remember that these schemes are long-term investments and you may not be able to access your pension fund until retirement age. If you are worried about accessing your savings in an emergency, you should seek financial advice from your local Citizens Advice Bureau.

Stakeholder pensions are a type of personal pension but differ in that stakeholder pension schemes must comply with certain rules and regulations set out by the government. For more information on stakeholder pensions, see Stakeholder Pensions. Pension schemes run by your employer are known as occupational pensions, and are described in detail in Occupational Pensions. Some employers choose to operate their own version of a personal pension scheme, usually referred to as a group personal pension, or GPP, because it sets out a pension scheme for a specific group of people: the employees. For more information see Group Personal Pension Schemes (GPP).