Personal Pension Schemes

Voluntary participation

• It is open to any individual below the age of 75 to take out an individual contract with a private pension scheme provider.

General finances

• Funded by contributions and, potentially, by the revenue generated from those contributions.

Contribution payments

• Contributions to these schemes may be regular or ad hoc.

State support

• Tax relief will usually be comparable to that available for occupational pensions. Calculation of the annual allowance, which provides tax relief, is made across all types of pension contributions made by the individual and for the individual (e.g. by the state or their employer).

• Pension plan providers (usually insurance companies and banks but independent providers also exist) manage pension funds and pay benefits directly to persons.
• Personal pensions may take the form of stakeholder pensions (which meet certain government requirements, such as requiring minimum contributions and capping charges) or of self-invested personal pensions (granting individual control over pension-fund investments).
• The Financial Conduct Authority regulates personal pension schemes.

• The individual must be 55 years or over to receive benefits from a personal pension scheme (ill health may allow receipt thereof earlier).
• The exact age at which one can take the pension will be determined by the terms of the relevant contract.
• The individual does not have to stop working in order to draw benefits.

Pension payments

• Accumulated capital through contribution payments and investment yields. This is accompanied by administration charges, whose form is dependent on the pension plan provider. Usually charges are capped at 0.75% of the pension fund.  
• Benefits will usually be in the form of a regular pension income, but one may also choose to receive it as a lump sum.
• Personal pensions are a form of a defined contribution (DC) pension scheme.

Taxation and social security contributions on pension payments

• Pension benefits are subject to income tax. However, no tax is payable if the annual pension amount is less than one’s personal allowance and 25% of the pension can usually be drawn on as a lump sum tax-free.
• No National Insurance contributions are payable on such benefits.
• If the total pension benefits drawn by an individual exceed a specified ‘lifetime allowance’ additional taxes become due (differing depending on whether they are taken as a pension or a lump sum).