Personal Pensions

Personal Pension Plans

Personal Pension Plan is a long-term savings arrangement designed to help you save for retirement. It is generally available to individuals up to age 75. A pension can also be established for a child by a parent or legal guardian.

You can start a Personal Pension Plan even if you already belong to a workplace pension scheme. Personal pensions are also commonly used by self-employed individuals, although you do not need to be working to contribute to one. Contributions can also be made to a pension for your spouse, civil partner, partner or child, subject to the relevant rules and limits.

When you contribute to a Personal Pension Plan, your money is invested by the pension provider to build up a pension fund over time. You can usually choose from a range of investment options, depending on your objectives and attitude to risk.

Tax relief

If you’re a basic rate taxpayer, your pension provider will claim back Income Tax at the basic 20 per cent rate on your behalf on the contributions you make and add it to your pension pot. Higher-rate taxpayers claim the additional rebate through their tax returns.

Contribution limits

The Annual Allowance (AA) is the maximum amount that can normally be contributed to your pension each tax year (6 April to 5 April) without incurring an Annual Allowance tax charge. This includes contributions made by you, your employer and any third party. The standard Annual Allowance is currently £60,000* or 100% of your relevant UK earnings, whichever is lower. However, lower limits may apply in certain circumstances, such as where the Money Purchase Annual Allowance or Tapered Annual Allowance applies. 

Tax-free cash

Pension benefits can normally be accessed from age 55 (rising to age 57 from 6 April 2028, unless you have a protected pension age). Generally, up to 25% of the benefits accessed can be taken tax-free, subject to the relevant limits and allowances. Any further withdrawals are normally subject to income tax at your marginal rate.

The size of your pension pot will depend on:

• the amount of money you paid into the plan
• the performance of the plan’s investments
• charges payable under the plan
• advice charges (where applicable)

These investments are intended to be held for the long term, as the value can go down as well as up, and over longer periods, markets have generally trended upwards. Staying invested for five to ten years increases the chance of seeing a positive return, although this isn’t guaranteed.

Taking your pension

Although most personal pension schemes specify an age when you can start withdrawing benefits from your personal pension (usually between 60 and 65) you are allowed to do that from age 55 (57 from April 2028) if you wish. You don’t have to stop work to draw benefits from your plan.

Death Benefits

If you die before age 75 and have not used your pension fund to purchase an annuity, your beneficiaries may be able to inherit any remaining pension fund as a lump sum or draw an income from it. Under the current rules, benefits paid following death before age 75 can often be received free of income tax, subject to the relevant rules and time limits. If you die on or after age 75, any withdrawals made by your beneficiaries will normally be subject to income tax at their marginal rate.

From 6 April 2027, most unused pension funds and death benefits will be included within the value of an estate for Inheritance Tax (IHT) purposes. Depending on the value of the estate and the beneficiaries involved, this may result in an IHT liability in addition to any income tax that may be payable on withdrawals by beneficiaries.

*Tax year 2026/2027