Updated: December 12, 2019

Personal Pension Set-Up

Read through this in-depth guide to find out exactly how you can set up a personal pension.

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Richard Angliss

Author: Richard Angliss - Finance Expert

Updated: December 12, 2019

Personal pensions are a popular retirement savings option for people who don’t have the luxury of a workplace scheme, and even those who want to put away extra money to fall back on when they finish working.

But exactly how do you set up a personal pension?

This article looks at the best way of setting up a personal pension plan, why they can be beneficial and what the process actually involves.

Why should I start a personal pension plan?

Most people start up a personal pension plan either because they don’t have a workplace pension, or they want to put extra money away for their retirement. Some also open one because they want more flexibility over their retirement investments. At the time of writing, the maximum state pension entitlement is £9,339 a year, which may not be enough to live comfortably on during retirement.

A key reason why so many of us delay setting up a personal pension is that retirement can often seem so far away. However, the sooner you start saving for retirement the bigger pot of money you will have for when you decide to stop working.

For those who don’t have access to an employer’s pension scheme – particularly those who are self-employed – a personal pension offers the most practical savings vehicle for retirement with a number of distinct benefits, such as:

  • Tax relief on contributions
  • Ability to withdraw a 25% tax-free lump sum when you retire
  • Effective inheritance tax (IHT) planning
  • Pension savings allowed to grow within a tax-efficient fund

Of all the benefits outlined above, the ability to claim tax-relief is, arguably, the most attractive incentive available as it effectively offers an additional sum of money – based on your highest marginal rate of income tax – from the UK government for any and all contributions you make into your personal pension.

Here’s how it works:

Gross Monthly Contribution Basic Rate Tax Relief (20%) Higher Rate Tax Relief (40%) Additional Rate Tax Relief (45%)
£50 £10 £20 £22.50
£100 £20 £40 £45
£150 £30 £60 £67.50
£200 £40 £80 £90

So, for example, if you’re a basic rate taxpayer and want to make a gross monthly contribution of £150 each month to a personal pension, your actual net payment will be £120 with the additional £30 provided through tax-relief from the government.

Basic-rate tax relief is automatically given at source. If you’re a higher or additional rate taxpayer you can claim your extra tax relief through a self-assessment tax-return.

If you’re a non-taxpayer or have no earned income of any kind you can still contribute up to £240 per month net to a personal pension and qualify for basic-rate tax relief (equating to an additional £60 per month).

As you can see, there’s lots of strong reasons why you should open a personal pension plan, so give us a call on 0808 189 0463 or get in touch and we can help you get started.

How to set up a personal pension plan

Setting up a personal pension is relatively straightforward and is something anyone can do. The best place to start is by speaking to an independent pensions expert to make sure you make all of the right decisions. Make an enquiry to get started.

As your advisor will tell you, there are a number of factors to think about when looking for the best provider who can cater for your needs, namely:

  • Charging structure
  • Fund choice and performance
  • Flexibility of contributions (lump-sum / regular)

The advisors we work with can show you how to set up a personal pension that best suits all of your own personal requirements, in terms of the type you’re looking for, fund selection and flexibility for contributions.

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What do I need to consider when opening a personal pension plan?

Once you’ve decided to open a personal pension there are a number of things to consider, such as:

Which type of personal pension should I choose?

Generally, there are three types of personal pension to choose from in the UK:

Standard personal pensions are widely available from most mainstream providers and would offer a variety of managed investment funds along with the flexibility of allowing both regular and lump sum contributions.

Stakeholder pensions have a more favourable charging structure than any other type of personal pension. However, the underlying fund choice tends to be more limited but some providers offer bespoke investment strategies catering for different risk categories.

SIPPs offer the widest array of investment choice and are usually the personal pension of choice for anyone who is looking to be much more proactive with how and where their contributions are invested.

How much should I pay into a personal pension?

This all really depends upon your own personal circumstances. In theory you should be saving towards a target income that you have set yourself in retirement, in order to be sure that you will have the standard of living you desire.

In reality, you can only save as much as your disposable income at the time will allow. It is important to regularly review (at least annually) the level of pension contributions you’re making so you can adjust – either up or down – as is necessary.

Where should I invest my contributions?

Most pension providers offer a wide variety of investment funds designed to cater for all risk categories. Advisors have sophisticated systems to help clients decide how much risk they personally would be willing to take. You will be able to choose from a range of different asset classes:

  • Cash/deposit-based investments
  • Fixed-interest investments (Gilts / Corporate Bonds)
  • Stockmarket-linked investments
  • Property

If you think you may need some assistance when considering all of these factors, give us a call on 0808 189 0463 or make an enquiry and we can arrange for an advisor we work with to get in touch to discuss them with you in more detail.

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Understanding how to open a personal pension can sometimes prove to be a barrier in itself.

This really doesn’t need to be the case. It’s important to be fully aware of what considerations are involved so you can make an informed choice and select a pension that is right for you.

The advisors we work with can help you find the most suitable personal pension from the best provider.

All advice is free and any information is always given in the strictest confidence. Call us on 0808 189 0463 or make an enquiry to get started.

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We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in pensions. Ask us a question and we'll get the best expert to help.

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Richard Angliss

Richard Angliss

Finance Expert

About the author

Richard Angliss has made a career in financial services which stretches over 40 years.

His early career was spent learning about the various financial products and applying them to prudent advice, working for one of the largest life assurance and investment firms. After that he joined the financial services arm of a very well-known firm providing independent advice to their 8 million customers.

For the last 20 years he has been involved in building software solutions that help Advisers and clients work together to achieve good financial outcomes and helping to set up three independent advisory firms. He also has written many articles for financial services publications and provided commentary for newspaper journalists.

At an early stage in his career he realised the great satisfaction that comes with being able to help people achieve their goals and protect their families. “Regulation of financial services has hugely impacted on ensuring people get appropriate advice. The issue these days is access to that advice and just as importantly regular reviews to make sure that everything stays on track”.

With the growing development of online resources such as Online Money Advisor he sees a great future for people to access advice to make their pension and investment work harder for them.  Plus, of course, to ensure they have insurance products in place that will be required when unforeseen events happen.

He knows getting that balance right is crucial to prudent financial planning and the wellbeing of individuals and their families.

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