Personal Pension Rules

Whether you’re employed, self-employed, or unemployed, paying into a personal pension can offer significant financial advantages.

Personal pensions are a useful tool to help you leverage your savings and build up a nest egg for your golden years.

To ensure you’re optimising management of your personal pension, it’s well worth taking the time to understand pension rules and what your rights are.

In this article, we’ll cover…

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What are the rules around personal pensions?

Most UK personal pensions – such as stakeholder pensions and SIPPs – have flexible payment options. This means that whether you change jobs, or even if you stop working, you can continue to pay into your pension. It can also easily be carried over from one workplace to the next, transferred into an annuity, or invested in a drawdown fund.

There are rules you should know about regarding the following…


Withdrawing cash

You can start withdrawing your retirement benefits at age 55, or earlier if you have health issues which require you to retire early. For each cash withdrawal, the first 25% can be taken out tax-free, the rest will be subject to income tax. So one-quarter of your total pension fund will be tax-free.

Although you can take cash out whenever you want to after the age of 55, many personal pensions charge a fee for each withdrawal.


Investing in a drawdown fund

A drawdown facility can be useful as a way to keep your pension funds invested while allowing you to take out a regular income. You choose how much of your funds you want to move and when to move it. The same tax rules apply when transferring your funds into a drawdown as apply to when you’re withdrawing cash: there’s a total 25% tax-free.


Buying an annuity

Putting your personal pension into an annuity is another way to make your pension funds payout a regular income for life. When you transfer the funds out of your personal pension, you can choose to take up to 25% out tax-free. The rest can be used to buy your annuity and your retirement income will be taxed as normal income.

Making any changes to your personal pension plan will likely have a big impact on your retirement income, so it’s best to consult a pension expert to ensure you understand all your options and the risks involved.



Who is eligible to pay into a personal pension?

There aren’t any restrictions on the number of pension plans you can hold, so even if you’re enrolled in a workplace scheme, you can have a personal pension and benefit from additional retirement income.

Personal pensions allow other people to contribute to your pension, and you’re also eligible to pay into someone else’s pension, such as a partner or a child. Recent changes to eligibility rules mean that even if you aren’t earning taxable income, you are able to contribute to a personal pension and receive tax relief on contributions.



How does legislation protect your personal pension?

Personal pensions offer a flexible and safe way to build up your retirement income. The UK government takes legislation of your pension funds seriously, carefully regulating pension providers to protect your money.

The UK’s Financial Services Compensation Scheme (FSCS) fully protects up to £85,000 of your savings with each bank, should your provider go bankrupt. As of April 2019, this guaranteed protection of £85,000 has been extended to pensions and investments. For annuities, the cover is unlimited.



Who regulates personal pensions?

The funds paid into a personal pension are invested by your provider. The Financial Conduct Authority works together with The Pensions Regulator (TPR) to regulate how these investments and pension funds are managed.

Together they oversee how your pension is governed and ensure rules are upheld for who can access a pension and how your funds are used and invested. It ensures your pension scheme has sufficient funds to give members their full pension entitlement.

 TRP places trustees and pension scheme providers under close scrutiny to give you the peace of knowing that your pension funds are safely stashed away for your retirement.



What are the laws for pension tax relief?

Personal pension laws use tax bands to determine the level of tax relief you can receive on your pension contributions.


  • You’ll receive tax relief on pension contributions that are based on your highest rate of income tax.
  • There’s a £40,000 per year limit on the amount of pension contribution you can receive tax relief on.



What are my personal pension rights?

As a personal pension holder, you have the right to manage your pension. You can make regular or individual payments into your pension, and you’ll receive statements telling you how much your pension is worth. Depending on the plan you’ve chosen, some providers will also offer information on how any investments have performed and give you a choice on your investment risk profile.

Personal pension holders have a right to transfer their pension. However, if you want to transfer a defined benefit pension worth over £30,000, legally you’re required to seek financial advice from an expert.

Make an enquiry to speak to an expert who can help you with any pension management or transfer needs you may have


Right of redress

If a personal pension holder is given bad advice and was encouraged to transfer out of their defined benefit pension, under FCA rules, they may be entitled to what’s called the right of redress.

Redress is a pension holder’s right to receive financial compensation in the form of a lump sum payout. The amount you could receive if you were given erroneous advice about pension transfers will be adjusted to take your tax band into account.

Contact us to speak to a pensions expert if you’re unsure of any advice you received about transferring out of a defined benefit pension in the past.


Waiver of premium

Personal pension holders could also have a right to a waiver of premium. This gives you the right to not pay into your pension if you’re unable to work due to a long-term illness or disability.

Pension providers are often insurance companies and these offer a waiver of premium as part of their policy. It exempts the holder from their payment requirements under conditions such as death or disability.



Speak to an expert pensions advisor!

Personal pensions are a safe and reliable way to save up for your retirement: they’re carefully regulated by the UK government to promote and enforce the highest standards of management and administration.

If you have any questions about how your pension works or you’re looking into setting one up, it’s worth speaking to an expert advisor.

Advisors can often save you money over the long-term by finding the best financial tools and solutions for your situation.

We work with top financial advisors from across the whole of the UK and we can help you by quickly putting you in touch with the right expert for your needs.

Make an enquiry or call us on 0808 198 0463

We can arrange a free pension review for you today

70% of customers who have a pension review find a better deal

We can arrange a free pension review for you today

70% of customers who have a pension review find a better deal

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