Your Pension Options

How Do Personal Pensions Work?

With personal pensions, you agree to pay a regular amount or a lump sum to the scheme provider who will invest it on your behalf. When you pay into a personal pension, the Government gives you tax relief on your contributions to boost the value of your pension.

The companies that sell pensions will charge you for starting up and running your pension. This means that these companies use some of the money in your pension scheme to pay these charges. This in turn reduces the amount of money that the companies invest, and reduces the size of your final pension fund. Different scheme providers can charge very different amounts – so make sure you shop around.

When you retire, you use the fund you have built up to buy a regular pension for the rest of your life (an annuity) from an insurance company. This does not have to be the same company that you have had your pension with. In some circumstances, you can get part of the pension fund as a tax-free lump sum, or you can take some of the fund as income before you buy an annuity. You should shop around and compare the annuity rates that different annuity providers are offering before you decide which annuity to buy.

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