If you are not in a company pension plan or you are self employed, there is the option of setting up a Personal Pension or a SIPP (Self invested Personal Pension). Most banks, insurance companies and unit trust groups will have a Personal Pension or SIPP product on offer. Don’t be put off by all the jargon surrounding these plans. They are basically just tax efficient long-term savings plans.
In most countries there are tax benefits for funding a long term retirement plan. In the UK there are tax incentives by way of tax rebates or tax deductions for funding a personal pension plan or SIPP.
Everyone (even those not working) can save up to £2,808 into their pension each year and still gain basic rate tax relief which will increase the total deposited by £792 to £3,600. So, if you are not working but can still afford it, consider contributing to your pension.
All Personal Pension Plans work on the same principles
Your contributions are invested in your selected assets or funds to build up a pot that on retirement can be used to buy a lifetime income. The final benefits you derive from a Personal Pension plan will depend upon the amount of contributions you have made, the charges for running the plan, the performance of your selected investments and the annuity rates at the time you convert your fund into a regular income stream.
With any Personal Pension plan you have to be disciplined about making regular ongoing contributions over as many years as you can and make sure you pay attention to the funds your money is invested in.
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Watch our Personal Pensions Video
This is a short introduction to Personal Pensions and SIPPs. Yvonne cuts through the pension jargon to explain the fundamentals of saving long term for retirement.