Personal Pension Plans
A personal pension plan helps you save money for retirement and is available to any United Kingdom resident who is between the ages of 16 and 75 (Children under 16 cannot start a plan in their own right but a Legal Guardian can start one on their behalf). You, in conjunction with your adviser, choose the pension provider and make the arrangements for paying the contributions to the plan.
You can start a personal pension even if you have a workplace pension or if you’re self-employed and don’t have a workplace pension. You don’t have to be working to take out a Personal Pension Plan and you can also provide a Personal Pension Plan for your spouse/partner or your child/children.
When you contribute to a Personal Pension plan, your money is invested by the pension provider (usually an insurance company) to build up a fund/pension pot over a number of years.
Tax relief
If you’re a basic rate taxpayer, your pension provider will claim back Income Tax at the basic 20 per cent rate on your behalf on the contributions you make and add it to your pension pot. Higher-rate taxpayers claim the additional rebate through their tax returns.
Contribution limits
The Annual allowance (AA) is the most you or your employer can save into your pension pots while still receiving tax relief. The current total is the greater of £3,600 gross or 100% of your relevant UK earnings, subject to an overall maximum of set at £60,000* as per tax year (6 April to 5 April). If you contribute more than that you will pay a tax charge.
Tax-free cash
Most schemes allow you to withdraw 25% of your fund tax-free from age 55 (57 from April 2028). Subsequent withdrawals are subject to income tax.
The size of your pension pot will depend on:
- the amount of money you paid into the plan
- the performance of the plan’s investments
- charges payable under the plan
- advice charges (where applicable)
Taking your pension
Although most personal pension schemes specify an age when you can start withdrawing benefits from your personal pension (usually between 60 and 65) you are allowed to do that from age 55 if you wish. You don’t have to stop work to draw benefits from your plan.
Death Benefits
If you die before the age of 75 and haven’t purchased an annuity, your beneficiaries can inherit the entire pension fund as a lump sum or draw an income from it completely free of tax. If you’re over 75 years of age when you die, there will be a tax to pay on any withdrawals made by the recipient of your fund.
In the October 2024 Budget, the government announced that from 6 April 2027, most unused pension funds and death benefits will be included within an individual’s estate for Inheritance Tax purposes, regardless of whether the benefit is paid to an individual or a trust. The legislation is currently at draft/consultation stage and remains subject to change.
*Tax year 2025/2026
