Personal Pensions

Description
Investors with or without a company pension scheme can start individual pensions.

Objective
To provide individuals with an investment plan into which they may contribute savings that may be used for retirement.

Suitability

Pensions are suitable for investors who want to set aside savings for retirement.

Features

• Eligibility: The pension does not have to be yours, you can start one for a family member. Children: There is no lower age limit, so you can even set a newborn baby on the path to financial security. Couples with one income between them: A breadwinner could start an individual pension for a non-working, dependant spouse so that in retirement there are two pensions and therefore, two personal tax allowances instead of just one. Higher rate taxpayers: Someone who is set to be a higher rate taxpayer after retirement could see whether starting an individual pension for his or her dependant spouse might bring the two pensions into the lower tax band.
• Contributions: Everyone is allowed to contribute up to £3,600 a year and those with relevant earnings may be able to contribute more and hence benefit from higher tax relief. You pay your pension contributions minus the government's tax allowance - the government gives you an immediate 25% increase in the value of your fund. If you contribute £2,880 a year, the government adds £720 to bring the annual payment up to £3,600. Higher rate taxpayers can claim a further 20% relief on their tax returns.
• Tax relief: The government offers a standard tax relief at an individual's highest marginal tax rate on all contributions.
• Returns: There are no direct returns from pension plans as they are only wrappers for other investments. Inside the wrapper you can hold a range of high quality, long-term investments including shares, life assurance company investments, investment trusts, mutual funds, deposit accounts, commercial property, loans to companies, gilts (government borrowing) and cash. Remember that investments within the plan can go down as well as up in value and should be viewed for the long term.
• Charges: Charges can start at less than 1% a year on the value of your pension fund.
• Transferability: You can transfer into or out of the schemes, or stop paying for a while, without any extra charge, if this is suitable for your circumstances and needs.
• Pensions and ISAs: Taken separately, pension plans and ISAs are excellent long-term investments, offering tax-efficiency and flexibility. The two together are complementary and can be a highly effective way of planning for your future. The pension plan provides an investment that is in a favourable tax environment until you take the income and the ISA provides an investment, which is in a favourable tax environment once the money is invested and when you take the income.

Important Information: Tax law and practice are subject to change. The value of tax benefits to you depends on your personal circumstances.

For guidance on the best pension plan to suit your needs, please contact your Edward Jones financial adviser.