Private Personal Pensions
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.
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.
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.
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.