Personal pensions

If you don’t have a workplace pension, or want to build up additional pension savings, then you can set up a personal pension scheme. A personal pension is particularly important if you are self-employed, or if you live off your partner’s income but want to have your own pension arrangements.

All personal pensions are defined contribution schemes. This means you save up a pot of money which is invested in a fund, and which you can access from the age of 55 onwards.

There are two main types of personal pension scheme: stakeholder pensions and self-invested personal pensions (SIPPs).

Stakeholder pensions

A stakeholder pension offers a degree of flexibility over when and how much you contribute to it. You can pay in as little as £20 a month and you can stop payments if you need to, and start again when you can, without any penalty. As with all defined contribution schemes, the value of the scheme at retirement will depend on how much you have contributed and the investment growth on those contributions. The management charges are usually quite low.

Self-invested personal pensions (SIPPs)

A SIPP is the most flexible kind of pension, in that it lets you choose the investments that make up the fund. You can choose from a wide range of asset classes including equities, investment trusts, commercial properties and government securities. This can make it an attractive option for those who like to take a more active role in investment. You can also appoint a fund manager or independent financial adviser to handle the investment strategy for you. SIPPs have the potential for higher risk, but also higher levels of growth. They may involve higher management charges too.

Junior SIPPs

You can set up a SIPP for anyone under the age of 18. This can deliver surprisingly good returns, because the money is invested for such a long time. It can also be a great way to encourage children to save for the long term. Read more about junior pensions.

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