Personal Pension

Save for your retirement. Personal pensions are ‘defined contribution’ pensions. Your money can be invested in shares, bonds, property or cash. Your final pension will be based on how much you pay in and the performance of your investments.

Personal Pension

A Personal Pension is a flexible, tax-efficient way of saving for your retirement. There are limits on how much you can save, but generally you earn Income Tax relief at your highest marginal rate (up to 45%) on your contributions which boosts the amount you save by at least 20% immediately, and once invested your savings grow free from all personal taxes.

It’s a good idea to make a start and save for your retirement as soon as you can. Your pension will invest in a range of assets including cash, fixed interest, shares and property. The longer the time you invest for, the better the outcome.

You can start withdrawals from your pension from 55 (57 from 2028). 

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Earn Income Tax relief at up to your highest marginal rate (up to 45%) on your pension contributions.

Your pension contributions will reduce your Adjusted Net Income. This means you could earn even higher rates of Income Tax relief on your contributions - up to an effective rate of 60%.

Your pension savings grow free from all personal taxes.

You can make regular or flexible single contributions depending on your circumstances.

Your pension savings can be paid as a tax-free lump sum to your loved ones if you die before retirement (or 75, whichever is earlier).

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Frequently Asked Questions

The information provided in these FAQs does not constitute professional financial advice. We strongly recommended that you consult a professional adviser before proceeding with a financial transaction.

What happens to my pension when I retire?

When you reach 55 (57 from April 2028) you have three options:

1. Take your pension fund as a lump sum.

2. Use it to buy an annuity (a guaranteed income).

3. Take your pension commencement lump sum and transfer the balance of your savings to a flexible access drawdown plan, from which you draw either regular or variable income.

What tax relief will I get on what I pay in to my pension?

You get Income Tax relief when you pay into your personal pension. Your pension provider will automatically claim Basic Rate Income Tax Relief and add it to your pension for you. This will top up your contributions by 20%. For example, if you pay £100 into your Personal Pension, the taxman will add another £25. This means that for each £100 you pay, your gross contribution will be £125.

Higher and additional rate taxpayers can claim a further 20% or 25% respectively. These higher rates of Income Tax relief can be claimed through your Self-Assessment Tax Return every year.

In addition to these main Income Tax reliefs: 

  • If your Adjusted Net Income is more than £100,000 the top rate of tax relief you earn could be as high as 60%. This is because your pension contributions will reduce your Adjusted Net Income, and this will help you to gradually recover your ‘lost’ Personal Allowance – you lose £1 of your Personal Allowance for every £2 you earn over the threshold. 
  • If you’re a Higher Rate taxpayer and you have young children you may be paying the High Income Child Benefit Tax Charge. If your Threshold Income is more than £50,000, this charge recovers 1% of your Child Benefit for every £100 you earn above the threshold. Any contributions you make to a Personal Pension will reduce your Threshold Income, so they could help to recover some of your Child Benefit. 

Once invested your pension contributions grow free from personal Income Tax and Capital Gains Tax.

The maximum amount you can contribute to your pension(s) is limited by the lower of your Relevant Earnings (subject to an absolute minimum of £3,600 gross) and the Annual Allowance. For 2022/23 Tax Year the Annual Allowance is £40,000.

Bear in mind, if your Adjusted Income is more than £240,000, your Annual Allowance will be reduced by £1 for every £2 of income over the £240,000 threshold. The maximum reduction is £36,000. The restriction does not apply if your Threshold Income is less than £200,000.

Note that this tax treatment depends on your individual circumstances and may be subject to change in future.

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