A Guide to Personal Pensions

While workplace pensions are a good start, what if you don't have one? Or what if you're already paying in the maximum your employer will match and you want to save more?

This is where a personal pension comes in. It's a pension that you set up and control yourself, giving you the freedom to choose your provider, your investments, and your contribution levels. This control is especially vital for the self-employed, who don't have an employer to do it for them.

But with this flexibility comes responsibility. Here, we'll cover what a personal pension is, who it's for, and how an independent financial adviser can help you set it up for success.

What is a personal pension?

A personal pension is a type of defined contribution (DC) pension pot that you arrange yourself with a pension provider, such as an insurance company or an investment platform.

It's "personal" because it's not tied to any employer. You are in the driver's seat.

Just like other DC pensions, it works by building up a pot of money based on:

1. Your Contributions: The money you choose to pay in, either as regular monthly payments or one-off lump sums.

2. Government Tax Relief: The government tops up your contributions. For every £80 you pay in, the government automatically adds £20 (the basic rate of tax), turning your contribution into £100.

3. Investment Growth: Your pot is invested in funds (like stocks and bonds) with the aim of growing its value over the long term.

The final value of your pot is not guaranteed and depends on how much you've paid in and how well your investments have performed.

How is it different from a workplace pension?

The main difference is employer contributions.

You can have a personal pension in addition to a workplace pension. Many people use a personal pension to top up their workplace savings or to consolidate old pots.

Who needs a personal pension?

Personal pensions are not just a "nice to have" - for many people, they are an essential financial tool. You should strongly consider one if you are:

• Self-employed or a sole trader: This is the most common and effective way for you to save for retirement. You have no employer, so the responsibility is 100% yours.

• A limited company director: A personal pension (or SIPP) is a highly tax-efficient way to extract profit from your company.

• A non-earner or stay-at-home parent: You can still pay in up to £2,880 a year and the government will top it up with £720 in tax relief, giving you a total contribution of £3,600.

• A high earner: If you're already contributing the maximum to get your full employer match in a workplace scheme, you might use a personal pension to save more of your income.

• Looking to consolidate: You may choose to open a new personal pension (like a SIPP) to act as a single "home" for all the old workplace pensions you've collected over your career.

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Understanding SIPPs (Self-Invested Personal Pensions)

You will often hear the term "SIPP" used alongside "personal pension."

A SIPP is a type of personal pension. It's not a different thing, but rather a more advanced version.

• Standard Personal Pension: The provider usually offers a small, straightforward list of investment funds, which is perfect for those who want a simple, "hands-off" approach.

• Self-Invested Personal Pension (SIPP): This gives you maximum control. You get a huge range of investment choices, including thousands of funds, individual stocks and shares, investment trusts, and even commercial property. This is for people who are confident in making their own investment decisions or who are working with a financial adviser.

How our independent advisers can help with your personal pension

Being in full control of your pension is a great benefit, but it can also be daunting. Which provider? Which funds? How much to contribute? This is where an adviser becomes invaluable, especially for the self-employed.

Here are the key services our expert advisers can provide:

1. Helping You Set Up

If you're self-employed, this is the first hurdle. We will:

• Recommend the right provider: We'll help you choose the right plan for you - whether that's a simple personal pension or a more complex SIPP - by comparing providers on charges, features, and investment options.

• Handle the setup: We'll manage the application process, getting your pension up and running with minimum hassle.

2. Contribution Planning (Especially for Self-Employed/Directors)

Your income might be "lumpy" and irregular. We will:

• Advise on tax-efficient contributions: We can show you how to make contributions in the most tax-efficient way, such as paying directly from your limited company to save on Corporation Tax.

• Manage your Annual Allowance: We'll help you make the most of your tax relief and, if you have a large profit one year, we can advise on using "carry forward" to contribute more than the standard £60,000 annual limit.

3. Creating Your Investment Strategy

This is the most critical part of managing a personal pension. Instead of a generic "default fund," we will:

• Understand your goals: We'll build a portfolio that is matched to your specific retirement date, goals, and personal attitude to risk.

• Manage the investments: We can build and manage a diversified portfolio for you, ensuring your pot is working as hard as possible.

4. Consolidating Your Old Pots

If you've had jobs in the past, we can help you decide if your new personal pension is the right "home" for your old pots.

• We will check for any lost guarantees or high exit fees before advising you to move anything, ensuring you don't make a costly mistake.

5. Holistic Retirement Planning

We will look at the bigger picture, integrating your new pension with your ISAs, property, and any other assets to build a single, comprehensive plan that shows you exactly what you need to do to achieve the retirement you want.

Get started here to book a free pension review and a no-obligation chat with an independent financial adviser who specialises in personal pensions.