Personal Pensions or Private Pensions

What is a Personal Pension?  A Personal Pension (also known as a Private Pension) is a Pension Scheme for a specific individual - i.e. yourself.  This is as opposed to a State Pension or a Company Pension Scheme.  You may pay into a Personal Pension in addition to State Pension and Company Pension Schemes.

As a member of a Pension Scheme, you make payments called contributions (or contributions are made on your behalf) during your working life.  Once you retire, the Pension Scheme will then provide you with an income.  Typically, a Private Pension Scheme will provide an income by purchasing an Annuity.

Benefits of a Personal Pension  Paying into a Pension Scheme is a means of saving for your retirement.  It will increase your retirement income beyond that provided by a state pension or company pension alone.  Usually paying into a Pension Scheme is a tax efficient means of saving - subject to various limits, income you pay into a pension scheme will often be exempt from Income Tax.  This tax exemption effectively multiplies your savings - nearly double for high tax payers - but imposes constraints on when and how you can access your pension funds.  Because Pension Funds are long term investments they tend to attract high rates of growth than short term investments - although this is not always the case. Your employer may even make additional contributions into a Pension Scheme. 

You should consider paying into a Personal Pension if your employer does not provide a Company Pension Scheme, if you are self employed, or if you do not receive a regular income from employment, but nevertheless you can afford to save for retirement.  Even if you are a member of a Company Pension Scheme, if you have money to spare, you may still benefit from paying into a Personal Pension as a Supplemental Pension - although first check that you are not better off by paying additional contributions into a Company Scheme.

Your employer may provide a Stakeholder Pension - this is a form of Personal Pension that complies with various Government conditions. You may choose to use this scheme or take out one of your own.

Shop Around  You can buy a Personal Pension through Banks and Financial Advisors.  Pension Funds can involve large sums of money - to provide a retirement income of just half your annual salary may require a pension fund of more than ten times your salary.  Business transactions involving large sums of money, often make for large profits and, therefore, competition.  Shop around to find Pension Providers offering the best products and terms.

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Regulating Private Pension Schemes: Trends and Challenges

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