What are the different types of pension?
There are a number of different types of personal pension, ranging from stakeholder pensions to standard personal pensions to self-invested personal pensions. You should talk to a financial adviser to be certain which one is right for you. Here’s a quick rundown of the types of personal pension plans available.
Personal pensions
With a personal pension, you pay money into a pension fund. In some cases, employers who don’t offer an occupational scheme may make payments into the personal pensions of employees. These plans are provided by financial institutions with professional fund managers who will invest money on your behalf so that it has the potential to grow in value. Please note the value of your investment can go down as well as up and the value of the pension fund may be worth less than has been invested. When you retire you can normally take up to 25% of your fund as a tax-free lump sum and use the rest to provide an income. Tax rules may change in the future.
Stakeholder pensions
Stakeholder pensions are personal pensions that have to meet certain minimum standards set by the Government, and have a maximum charge. They are designed to help people with a low income start investing towards their pension. These plans are provided by financial institutions with professional fund managers who will invest your money to build up a pension fund for you. When you take your benefits, you can normally take up to 25% of your fund as a tax-free lump sum and use the rest to provide an income. However, tax rules may change in the future and the value of your investment can go down as well as up and the value of the pension fund may be worth less than has been invested.
Self Invested Personal Pensions
A Self Invested Personal Pension (SIPP) could be right for you if you are experienced and confident in making your own investment decisions. It allows you to build up a fund in a tax efficient way and brings with it greater investment choice and flexibility than most personal pensions. With a SIPP, you can choose, and move between, a wide selection of funds and permitted investment types to meet your own investment goals. When you take your benefits you can normally take up to 25% of your fund as a tax-free lump sum and use the rest to provide an income. However, the value of your investment can go down as well as up and the value of the pension fund may be worth less than has been invested. To find out more details and if this is the right choice for you, you need to speak to a financial adviser. Tax rules may change in the future
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