Personal Pensions are, like the Workplace Pension, quite simple and anyone can set one up. There are no age limits, even children can pay into a Personal Pension, and they are simply a tax efficient savings account.
Personal Pensions are normally run by insurance companies and you will need to shop around before setting one up. There will be fees to pay, but every time you pay into your Personal Pension, so does the Government via tax relief. A Personal Pension should, therefore, be a better way to save for later in life than putting money in the bank!
You can pay any amount that you choose into a Personal Pension, but over certain amounts the tax relief doesn’t apply. A Personal Pension is therefore simply your own personal pot of money that you can keep no matter who you work for.
You can’t have your money instantly though! You will have to wait until you are at least 55 to get the cash out of your Personal Pension. In the meantime though your money will be invested – in what ever you choose – and could increase in value over time. When you reach 55 you can, currently, take a quarter of your pension pot tax free, with the rest being taxed as per any other income. So there are lots of advantages to using a pension to save.
But why is saving even important? Until recently many people retired in their 50’s or 60’s and could be expected to live another 10 or 20 years. Now, with medical advances meaning that we live long, we could be retired from work for almost as many years as we actually worked. Let’s think of this as having lots of “gap years” at the end of your life. If you want to enjoy these you are going to need a lot of money saved up. The earlier you save, the more time your money has to earn interest and the larger your pile of cash will be when it’s time to kick back and have fun,
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