What is a Personal Pension?

A personal pension (also known as a private pension), works similar to a workplace pension. The difference being, it’s set up by you rather than your employer. There are three main types of personal pension:

• Personal pension schemes
• Stakeholder pension schemes
• Self-invested personal pension plans (SIPPS)

All three pension types are defined contribution schemes, which means you contribute into a savings pot which is invested into a fund. This money can then be accessed from the age of 55. The amount that you’ll have access to will depend on how much you’ve contributed, and how your investments perform.

What’s the difference between a Personal pension scheme and a Stakeholder pension scheme?

Although the two pension schemes are very similar, there are a few key differences.

• A stakeholder pension schemes fees are limited, by law to 1.5% of the pension pot amount for the first 10 years, then reducing to 1%. Personal pension fees might be higher, so it’s likely that the stakeholder pension may have lower annual fees.
• The minimum contribution into a stakeholder pension, by law is £20 per month. The minimum monthly contribution into a personal pension may be higher.
• A stakeholder pension may offer a narrower range of funds for investing your contributions.

What is a self-invested personal pension (SIPP)?

A SIPP is a type of pension that lets you take control of your retirement money and investments. It’s the most flexible type of personal pension, as you have the freedom to invest almost anywhere you like, and can often choose from ready-made investment portfolios or pick your own individual investments. SIPPS have the potential for higher levels of growth, but also higher levels of risk.

Do I need a Personal Pension?

If you don’t have a workplace pension, then setting up a personal pension could be a good way to start investing and planning for your retirement. This may be a good option for those who are self employed, or those who have opted out of there workplace pension scheme.

You can pay into a personal pension and a workplace pension simultaneously if you wish, however there is a limit on how much you can invest into your pension pot each year (the annual allowance) and throughout your lifetime (the lifetime allowance).

If you’re unsure which type of pension is the best option for you, seek professional advice from a reputable adviser

Make sure that any person or firm you discuss your pensions with are regulated by the Financial Conduct Authority (FCA) and are authorised to provide pension advice. Check the FCA register of regulated companies before giving out any personal details.

Money Advice Office provides free independent and impartial information and guidance. They also have reputable financial advisers available who can help you make the best decision for your own personal circumstances.