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Pensions are long term investments. You may get back less than you originally paid in because your capital is not guaranteed and charges may apply.

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Last updated: 26 May, 2021

What is a personal pension?

A personal pension is a pension plan that you arrange yourself.

With a personal pension plan, you appoint a pension company to manage your pension for you. The pension company chooses the funds you invest in.

If you don't have a workplace pension, a personal pension could be a good way of saving for your retirement. Sometimes, the pensions offered by employers happen to be personal pensions - this is called a group personal pension. But you can get a personal pension, UK wide, whether you're an employee or not.

How a personal pension scheme works

Usually, the pension fund is invested in stocks and shares. The aim is to grow your pension fund before you retire.

When you retire, you can start claiming your pension. You could have it as a regular payment, or as a lump sum.

Why opt for a personal pension plan?

A personal pension might be a good idea if you don't have the option to save into a workplace pension. You can build a retirement income, and get personal pension tax relief on your personal pension contributions.

Personal pensions are tax efficient. Personal pension providers claim pension tax relief and add it to your pension pot. But if you're a higher rate tax payer, you'll need to claim the additional rebate through your tax return.

If you're interested in setting up a pension plan, speak to an independent financial adviser to get some personal pension advice. You can discuss your retirement options if you're unsure what type of pension scheme to invest in.

Does it matter how many funds you choose?

Why choose a personal pension plan?

There are three main reasons to invest in a personal pension scheme:

Before you look into personal pension providers and start a pension plan, make sure you do your research. You need to understand the risks of investing in a personal pension plan. Whichever personal pension you choose, remember that the value of your personal pension fund could go up or down.

What types of personal pension schemes are there?

The most common types of personal pension are where personal pension providers choose the funds you invest in. If you're using a group personal pension plan or have a workplace pension, this tends to be how it works.

This is the most popular type of personal pension because you don't have to make your own financial decisions about where to invest your funds.

The other option is a self-invested personal pension (SIPP). With these, you choose where you invest, so it's a kind of 'DIY' method. There's a larger list of funds to choose from than there are with a personal pension.

If you don't want to choose your own pension funds then speak to an independent financial adviser to about the best personal pension plans for you.

Picking the best pension companies and the best pension plans

Our comparison lets you find the best personal pension companies by comparing:

  • How much they charge you in annual fees

  • The number of funds they let you choose from

  • How much they let you invest.

Then click 'view details' to find out more. There are lots of other charges that might apply when managing your own pension. So it's a good idea to click through to each company's website to get more details. Then you can compare these other costs from all the pension companies before you invest.

If you're trying to find the best pension scheme, UK wide, for your needs, our pension comparison above is a good place to start. But you might like to get some pension advice from an independent financial adviser too.

What are the pros and cons of a personal pension?

Pros

  • They're good for people who can't get a workplace pension
  • You'll get tax relief
  • You'll get a tax-free lump sum or regular payment when you reach 55 or retire
  • They're quite portable, so if your situation changes you can usually carry on making personal pension contributions.

Cons

  • You don't usually get employer contributions
  • Management charges are usually higher than with workplace pensions
  • You don't know how your investments will perform so funds could go up or down.

Can you withdraw money from your pension?

In 2015, there were changes to the pension rules. This means there's now more choice and flexibility than ever when it comes to your pension. This applies to how you take the money out and when you take it out.

The personal pension age is 55. So when you reach the age of 55, you can start drawing money from your personal pension whenever you like. Or you can choose to have it as a regular income. You might prefer to wait until you retire to start taking money out.

How much will I get from my personal pension scheme when I retire?

The size of your pension pot when you retire depends on several factors. These include:

  • How long you've been making personal pension contributions for

  • How much you've paid into your pension in that time

  • The performance of your investments

  • Whether you have an employer who's been making contributions too

  • How much you have to pay in charges (all personal pension providers are different).

You could use a personal pension calculator to get a rough idea of how much you might have.

But remember that a personal pension calculator will only ever give an estimate. Even the best personal pension plans might underperform. A personal pension calculator can't possibly know how well your funds will perform, and the size of your pension pot can be affected by this.