We make pension planning simple
How personal pensions work
The core idea behind a personal pension plan is straightforward. You contribute money to a savings fund with the goal of growing its value over time. When you reach retirement, you have several choices available to turn that fund into a comfortable income.
Please Note: The value of investments and the income from them can fall as well as rise, and you may not get back the original amount invested.
HM Revenue and Customs practice and taxation laws are complex, tailored to your individual circumstances, and subject to changes that cannot be foreseen.
Paying into your pension
You can build your pension pot using whichever payment method suits your financial routine best:
Regular instalments: Setting up a monthly Direct Debit builds effortless saving into your budget, making long term planning simple.
One off investments: Paying in single lump sums gives you complete flexibility, which is ideal if your total earnings for the tax year are unclear until closer to the end of the tax year. Please note that providers may set minimum amounts for single payments.
A combination of both: Combining regular contributions with top up payments lets you stay disciplined while making full use of your tax allowances as extra cash becomes available.
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Tax benefits and limits
The government encourages retirement saving by topping up your contributions with tax relief based on your tax band.
When you pay into a personal pension, your contribution is made net of basic rate tax. For instance, if you pay £80 into your plan, your provider claims £20 directly from HMRC to top your total investment up to £100.
If you pay tax at higher or additional rates, you can claim extra relief through your self assessment tax return or a tax code adjustment. For self employed individuals, basic rate relief is added automatically, while higher rates of relief are claimed on your tax return.
Limits on what you can save
Your pension money is placed into investment funds to help it grow. While providers offer many fund choices, they broadly fall into two main types:
The annual allowance: Most individuals can save up to £60,000 across all pensions each tax year without triggering a tax charge. If you have unused allowances from the previous three tax years, you may be able to carry them forward to save more.
Earnings cap: Personal contributions eligible for tax relief are capped at 100 percent of your total earnings, or £3,600 gross if you have no earnings.
Saving for loved ones: Because the person paying into the pension does not have to be the beneficiary, you can set up contributions for a non working spouse, children, or grandchildren as part of your overall estate planning. Tax relief stops at age 75.
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Choosing your investments
Your pension money is placed into investment funds to help it grow. While providers offer many fund choices, they broadly fall into two main types:
Unit linked funds: Your money is pooled with other investors to buy shares and underlying assets. The unit value moves up and down directly with market conditions. While market dips allow new contributions to buy more units for the future, those nearing retirement often move towards lower risk funds to protect their pot.
With profit funds: These funds aim to smooth out market highs and lows by holding back a portion of growth during good years to supplement returns during quieter periods.
Note on with profit policies: A market value adjustment may apply if you cash in early. The eventual value depends on overall fund performance and how profits are distributed.
Growth projections
To give you an idea of your future fund size, providers use standard growth rate assumptions set by the regulator. The standard growth rates are 2 percent, 5 percent, and 8 percent. When adjusted for inflation, these figures equate to minus 0.5 percent, 2.5 percent, and 5.5 percent respectively.
Working out how much to invest
The best approach is to save as much as you can comfortably afford as early as possible. Modern pensions are flexible, allowing you to increase, lower, or pause contributions if your circumstances change.
Linking to your income: A great benchmark is to set aside a fixed percentage of your salary each month and increase your contributions whenever your income grows.
Targeting a retirement goal: Alternatively, you can calculate the exact pot size required to generate your ideal income in retirement. We can help you calculate this target and review your progress regularly.
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Call us on 020 7183 8343, Monday to Friday, 9am–5pm
Understanding state benefits
The new State Pension provides a regular income from the government once you reach State Pension age. You qualify if you are a man born on or after 6 April 1951 or a woman born on or after 6 April 1953.
Payment amounts: The full new State Pension is £236.20 per week. Your precise payout depends on your National Insurance record.
Qualifying years: You generally need at least 10 qualifying years on your record to receive any State Pension, and around 35 years to receive the full amount.
Combining income: Receiving a State Pension does not affect your entitlement to draw income from a private or workplace pension.
Diversifying your savings
While personal pensions are a cornerstone of retirement planning, they work best when combined with other tax efficient options like ISAs and general savings to create a balanced financial strategy.
A pension is a long term investment. Fund values will fluctuate over time, and your final income will depend on your pot size, prevailing interest rates, and tax legislation at the time you retire.
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