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The value of investment-based pensions, and the income they produce, can fall as well as rise. You may get back less than you invested.


      Pensions - Introduction to Pension types

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  A plethora of options:  Pension advice and planning is important


     Pension and Retirement Issues


There are literally thousands of different pension options available so it is not possible to cover even a fraction of these on these pages.  


There are basically 3 major sources of retirement income in the UK. These are 1) the State Pension, 2) Occupational Pensions (either private or public sector) and 3) Personal Pensions


The fundamental concept of a pension plan is very simple. You put money into a fund, it hopefully grows in value and at retirement you convert the fund into a regular income payment, which will replace part, or all, of your earnings from employment.


Saving into a pension is normally done in one of the following three ways.


Regular instalments


A direct debit is set up and the pension payment is taken automatically each month, so you do not have to worry about missing a contribution.


Once you start making regular contributions in this manner, it is easy to plan your budget accordingly.


Depending on whether you have decided to increase your contributions over time, you may want to check that you are paying the right amount in relation to your salary.


One-off investments


If you prefer not to be committed to regular monthly contributions, you can make one-off investments at a time of your choosing.


However, the responsibility is yours to make sure that an investment is made.


The pension provider will not automatically remind you that a payment is due

and it is very easy to find other things to spend the money on.


Providers usually place minimum contribution amounts on single premium payments and this can be useful if you are self-employed or if you pay higher rate tax, as the amount of contribution attract tax relief at your highest rate.


You can also choose a different provider or investment fund

each time you make an investment and in this way a more balanced portfolio of pension investments can be built up over a number of years. However, there are charges for establishing new pensions and investing in new funds.


Combined regular and one-off investments


To achieve the best of both worlds, you might want a combination of investment frequencies.


This provides both the discipline of regular investments and enables you to also make one-off investments so that the best use of available tax relief is made.


Regular investment plans usually offer “pension contribution insurance” (PCI), which can ensure investments continue even if you are unable to work through illness.




Tax incentives form an important part of the Government’s drive to encourage regular savings for retirement purposes.


Tax relief is available on pension contributions and this is obtained in different ways depending on whether you pay basic rate tax or whether some of your income is at the higher tax rate.


Currently, the basic rate of tax is 20% and the higher rate is 40% (with an additional rate of 50%).


If you contribute to a personal pension or stakeholder plan, your contribution is made net of basic rate tax. The balance is paid by Her Majesty’s Revenue and Customs (HMRC), from whom the pension provider reclaims the difference.


So if you invest £160 into a personal pension, the provider will add

the remaining £40 and invest £200 on your behalf.


If you pay any tax at the higher rate, it is possible to claim back the marginal rate when you complete your tax return. In the example above, £200 is declared on the self-assessment tax return.


The tax office will then credit you with £80 of tax, less the £40 already received and invested. The net credit of £40 will usually be reflected in your PAYE code or schedule D assessment.


The overall effect of this is that an investment of £200 will actually only cost you £120.


If you are self-employed, the change to current year taxation has created a complex system of claiming back pension tax relief based in part on what you have paid and in part on an assumption that the same amount will be paid in the future.


Care should be taken to understand the effect on self-employed tax assessments when large single contribution are made or regular premiums are stopped.




The government sets limits as to how much can be invested in a pension plan. With effect from 6 April 2011, the maximum limit is £50,000 a year. It may be possible to carry forward unused reliefs if you have them.


It is possible to invest up to £3,600 a year gross in a personal pension and still

receive the 20% tax credit even if you have no earnings.


As the person making the contributions does not have to be the same person benefiting from the pension, this can be used for providing a pension for a non-working spouse or for children or grandchildren as part of a larger inheritance tax planning exercise.


Further brief details of the various pension types currently available can be found via the links located towards the top of this page.


I don't want to retire right

now - maybe next year, or

the year after...

But, can I afford to cut down

on my work hours already?

     find out more 

Is it a good idea to buy an

Annuity now or is it better

to wait?

Should it be a single or a

joint annuity?

     find out more 

retired couple

What is the right way to

arrange your Investments?

How much risk can you

afford to take?

How much income can

you get?

     find out more 


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You are always Welcome

to contact NFA for a free discussion

of your Pension arrangements


Phone: 01603 452686









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