Updated: January 16, 2023
Private Personal Pensions
How are private pensions different from personal pensions? This guide will outline everything you need to know.
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Author: Richard Angliss - Finance Expert
Updated: January 15, 2020
During our time helping customers choose the right pension, we’ve noticed that there’s a bit of confusion over what’s meant by the terms ‘private’ and ‘personal’ pension here in the UK, where you’ll often hear them used interchangeably.
To help clear things up, we’ve put together this short article to address any misunderstandings you may have about private pensions vs personal pensions, answering the following common questions:
What is the difference between a private and personal pension plan?
An important point to bear in mind about these two teams is that you will often hear one being used when (strictly speaking) the other may be more accurate. However, in many cases the term ‘personal pension’ can be used to describe both: a private pension is simply one type of personal pension.
In the rest of this guide, we’ll look into the features of private pensions that can be different from other flavours of personal pension, and why you might want to be aware of these differences – especially if you’re at the stage of choosing what type of pension to go for.
What is a personal pension?
Briefly, a personal pension is any pension – private or otherwise – that you contribute to solely as an individual, without mandatory input from an employer.
There are a few different types of personal pension to choose from, including stakeholder pensions and SIPPs.
What is a private personal pension?
A private pension is just one type of personal pension, so all the usual definitions apply (i.e. no mandatory employer contributions, choice of a range of products offering different levels of investment options etc).
However, the defining feature is that the provider of a private pension can charge whatever fees they like, and can also set higher minimum contributions.
This is because private pensions are not bound by all of the same rules as other types of personal pension (notably stakeholder pensions), which allows private providers to set their own fee structures.
This doesn’t necessarily mean they are more expensive, but they can be, and some charge fees that are significantly higher than more tightly regulated schemes.
What are the benefits of private pensions?
While their more variable fees can sometimes mean more expense for you, in return for the potentially higher costs you’ll typically get access to a wider range of investment options with a private personal pension plan, and often more flexibility in the level of risk you wish to take.
In the right circumstances, this could mean a better return on your investment.
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Private personal pensions and the State pension
In some cases, the term ‘private pension’ is used to distinguish a person’s individually-held pension from the state pension.
This is not completely accurate, because not all personal pensions are private: any workplace pensions, SIPPs, personal or stakeholder pensions can be treated as being entirely separate from the state pension, private or otherwise.
Can you get the state pension with a private pension?
Yes, you can still qualify for a state pension if you have a private pension or any other type of personal pension. Entitlement to the state pension is predicated on the number of years you’ve worked and made National Insurance contributions, and this won’t be affected by any personal pensions you choose to pay into.
Once you start to draw an income from your personal pension, however, the amount you take in any given year can have an impact on the amount of state benefits you’ll be allowed to take in that year – including the state pension.
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How much would I pay for a personal pension?
If you’re looking to start any personal pension soon and want to know how much you can expect to pay in fees, you could try putting your figures into a private personal pension calculator, which many of the best-known providers allow you to do free of charge on their websites. You can then compare the results with other available pension schemes.
However, online tools can only provide a rough estimate of what you could expect to pay, and trawling through multiple providers’ sites can be time-consuming.
Speak to an expert with access to the whole market for a more accurate picture of available products and costs.
Speak to an expert on personal pensions
For bespoke advice on the best personal pension in your circumstances, call Online Money Advisor on 0808 189 0463 or send an enquiry and we’ll be in touch soon to discuss your requirements free of charge.
We can then match you up with a suitable advisor: the experts we work with have a wealth of experience and are ideally placed to find the best solution for your needs.
They won’t charge you for your initial consultation and will review your pension options for free, plus there’s no obligation to act on the advice they offer.
Ask A Quick Question
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.
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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