Personal & Stakeholder Pensions
Many people do not have a company scheme to join or else the method that their company has chosen to provide retirement benefits is a personal pension or sometimes called a defined contribution scheme or money purchase plan.
Personal Pensions give the member control of their own pension funding. However the member also carries the investment risk and needs to consider the suitability of the funds that they are investing in. Remember that control also means a degree of responsibility is required in choosing an appropriate fund and funding at a worthwhile level.
A personal pension is your own property and can continue to accept contributions from you regardless of your employment status. You will receive tax relief at your highest personal level making this a very tax effective way for a higher rate tax payer to save for retirement.
Usually the pension provider will have a range of retail funds for your to choose from depending on your preference for Property, shares, cash, overseas funds ethical funds and so forth. Alternatively you can direct the investment decisions via a Self Invested Pension
Your money is invested and you get the full tax relief. Over time the funds grow with tax breaks where allowed, to produce a final fund value for you when you want to retire. You can then use this final fund to buy your retirement benefits.
You can take 25% of the fund as tax free cash and the remainder of the money is used to provide your retirement income. This can be done either by buying Annuities or by setting up an Income drawdown plan.
Your final benefits will be dictated by the size of your fund.
Stakeholder Pensions
Stakeholder Pensions are low cost versions of Personal Pensions. The annual charge that the product provider is allowed to take to run the scheme is limited to 1.5% per annum. Contributions are limited to £3,600 per annum. Some of the options of Personal Pensions are not available in Stakeholder schemes.
However you can make a third party contribution to a Stakeholder on behalf of another individual such as a child or grandchild. You do not need to be employed or paying tax at all to make a stakeholder contribution. You will still get tax relief.