Personal Pension Schemes

If you are aged under 75 and resident in the UK, you should be eligible to contribute to a pension. Most UK residents will also qualify for a state pension.

Whether you're employed or self-employed, you can contribute up to 100% of the value of your relevant UK earnings. There is an annual limit which is regularly reviewed and for the tax year 2011/12 the maximum amount is £50,000. Contributions above the annual limit are allowed but will be taxed. You may also contribute into any number of pension schemes (personal and/or company) each year.

You'll receive tax relief on your contributions to the pension fund - so for higher rate tax payers a £20,000 investment would cost just £12,000. 20% (basic rate tax relief) is added by the government to all contributions and as well as the basic rate tax relief, higher rate tax payers can claim up to a further 20% tax relief via their tax return each year.

Many employers provide an occupational pension scheme for their staff. An occupational pension simply means it's linked to your occupation, rather than an individual plan you choose for yourself. If your employer offers a pension scheme, it's usually a good idea to join it. Your employer normally contributes and you'll often get other benefits, such as payments to your dependants when you die, pension if you need to retire early through ill health or pensions for your dependants when you die.

If your employer doesn’t offer a pension scheme, or you fancy going it alone, then an individual pension can allow you to save for your retirement. This is basically your own pension pot that will continue regardless of where you are working. You can even pay into an individual pension if you’re not working, up to certain limits. A personal pension scheme will provide pension during retirement, which can start at any age between 50 (rising to 55 by 2010) and 75, tax-free lump sum on retirement of up to 25% of the pension fund which has been built up, pension payable to a widow, widower, civil partner or other dependant(s), tax-free lump sum, payable on death before retirement, to a widow, widower, civil partner or other dependant(s).

Individual pensions can be split into three types:
1. Stakeholder Pensions
2. Personal Pensions Schemes
3. SIPPs

Stakeholder Pensions must meet a number of Government requirements which include the flexibility to stop, start and change contributions without penalty, a low minimum investment – as little as £20, charges capped at 1.5% of the fund each year for the first 10 years and 1% a year thereafter. Because they have to be low cost, you may find that the number of funds is in short supply.

Personal Pension Schemes are likely to offer greater investment choice and flexibility, however they normally have a higher minimum contribution – often at least £100 per month – and higher annual charges than stakeholder schemes.

A Self Invested Personal Pension (SIPP) can allow you to take a much more active role in the investment of your pension pot. You may be able to choose from a range of fund managers and you could invest directly in commercial property, individual shares, stock-market and property funds, gilts (government bonds) and company bonds or futures and options. But you should seriously consider getting financial advice before you sign up. Speak to an advisor at Genie Financial Services Ltd today, call on 01865 609011.

When it is time to retire you will need to use your pension pot to buy an annuity from an insurance company. This will provide or secure your regular income for the rest of your life. You can also buy spouse's or dependant's benefits but this will reduce your own annuity.

Please be aware that the value of tax savings and eligibility to invest in a SIPP or Personal Pension will depend on individual circumstances and all tax rules may change in the future.zThe value of your investment can go down as well as up and you may get backless that you invested. The rules around pension investment will depend on individual circumstances and tax rules may change in the future.

In April 2010, the age at which you can start drawing your pension rose to 55 (historically at the age of 50). It’s useful to know that if you need to, pension benefits can be deferred until you are up to 75 years old. It may still be able to take your pension before age 55 in certain circumstances, which may include if you retire through ill-health.

There are two government state pensions - basic and additional state pension:
The Basic State Pension
The amount you'll get when you retire is based on the number of qualifying years you've gained through National Insurance Contributions (NICs), and you'll normally need 90% of your working life to be qualifying years to get a full basic state pension. From 2010, people reaching their State Pensionable Age will need to have paid them for a full 30 years. If your NICs are incomplete, you may also be entitled to Pension Credit, a means-tested benefit that ensures that people with little or no savings receive extra money.

The Basic State Pension currently pays £95.25 a week for a single person and £152.30 for a couple (tax year 2009/10). If you don’t have enough contributions or credits, your state pension income will be less.
The State Second Pension (formerly SERPS)

As well as the State Pension, you may also be entitled to a State Second Pension. The additional state pension is an earnings-related pension, payable on top of the basic state pension and will vary depending on your personal circumstances.

Until April 2002, the additional state pension for employees was called the State Earnings-Related Pension Scheme (SERPS). The amount of SERPS pension you received was based on a combination of your NICs, and how much you earned. In April 2002, SERPS was reformed and renamed the State Second Pension (S2P). It now gives a more generous additional state pension to low and moderate earners, certain carers and people with a long-term illness or disability. If you have joined an employer pension scheme you may have been "opted out" of the additional state pension.