Personal pension plans are for the self-employed and those that are employed by a company with less than five employees or a company that may be exempt from providing access to a group pension plan. The retirement annuity contract (RAC) has been replaced by personal pension plans. There are different types of personal pension plans. Whatever type of personal pension plan you choose, it’s important to be educated and have a good idea what you need to live out your retirement in the lifestyle you want. There are stakeholder pension plans, group personal pension plans, and self-invested personal plans. There are some limits with personal pension plans.
To build your own personal pension plan you can prepare for retirement and receive tax relief for your contributions. Employers have the option of providing contribution to pension plans. Some personal pension plans can move with an employee when changing jobs. The fees for a personal pension plans are usually deducted monthly from the pension fund and should be factored in.
Stakeholder pension plans have standards that must meet government requirements. The government restricts the annual management fees that are charged annually. The minimum payments are low which makes it affordable to more people. This pension plan is flexible in the way contributions are made and the way money is paid out. An employee may have access to this personal pension plan provided by an employer or can be start this pension as an individual. A stakeholder personal pension plan can leave with you when you change employers.
Group personal pension (GPP) plans are pension plans that are set up through an employer. The employer will choose the plan on your behalf. These plans are beneficial because often an employer will contribute to the personal pension plan. The payments are often made through payroll deductions. Often better terms for the pension plan are negotiated by the employer and accepted by the provided because it is for a group. When changing employment, this type of personal pension plan may have an option to continue to make payments to a GPP even though there is some monetary loss that could occur.
Self-invested personal pensions (SIPP) plans allow the pension scheme member to decide on the direction of the investments of the contributions. The goal of this personal pension plan is to provide annuity. That is where a large lump sum is contributed and over a fixed amount of time (which can be the remainder of the life of recipient), a smaller fixed amount is returned. There are tax regulations regarding the amount of the funds that will be used to purchase more annuities and what can be drawn out in lump sum.
Personal pension plans have contribution limits. The limits are based on age and net earnings (this can include the company car value, as well as fringe benefits, overtime etc. Investment income is excluded. The limits vary from 17.5% to 40%, with the lowest percent for 35 year olds and younger and the highest percentage for the 61 to 75 year old age group.
