In light of the recent public-sector strike, regardless of your stance on the issue, the importance of a reliable pension plan has never been more apparent. Here we explore the main options, extraneous to the standard state pension, available to individuals employed within the private sector, primarily those who are self-employed or those do not have access to a company pension scheme.
Personal Pension Plans
A personal pension plan is an investment policy into which the policyholder makes regular contributions which will act as income after retirement.
Personal Pension Plans are offered by:
- Insurance companies
- High-street banks
- Investment companies
Personal pensions are ‘money purchase arrangements’ This means that funds you pay into your policy are invested in:
As a result of this the value of your investment can fall as well as rise.
The amount you ultimately receive will depend on how your investments perform and the annuity rate – the policy used to convert your lump sum into a pension – when you retire.
Personal pension plans are available to anyone under the age of 75 in the UK and the policyholder can choose to retire anytime after the age of 55.
Stakeholder Pension Schemes
Stakeholder pension schemes share many of the same attributes of Personal Plans. However they differ slightly because they are required to adhere to certain standards set by the Government; this includes any charges which are incurred from using a pension’s scheme.
Stakeholder pension schemes are also more flexible than personal plans and you can switch pension providers without having to pay any charges.
You can make contributions from as little as £20 which you can choose to pay at intervals less regular than the monthly structure often required in personal plans.
Furthermore, you can stop and restart payments at any time without incurring any financial penalties.
These types of pensions are recommended for those earning £10,000-£20,000 a year.
Self Invested Personal Pension
A Self Invested Personal Pension (SIPP) is largely the same as the regular personal plans, offering similar tax relief and eligibility.
Where SIPPs differ is in the freedom they offer policyholders, allowing you more control over how your money is invested.
Rather than having your money invested on your behalf by the company that holds the policy, you can directly manage your investment strategy or appoint an external stockbroker or fund manager of your choice.
SIPPs also allow flexibility in the nature of your investment including:
- Commercial properties
- Unlisted shares
- Gold bullion
Your choice of private pension plan is often a combination of personal preference and financial situation and of the three options above, there are myriad plan variations offered by a number of companies.
You can compare different providers and their plans at money.co.uk or get custom pension advice at Money Supermarket in order to decide which path is best for you.