Personal pensions are usually cashed in at the point of retirement and having a personal pension has no impact on your entitlement to a basic state pension.
Whenever you make contributions into your pension pot, the government offers tax relief on these contributions. This means that for each pound you contribute to your pension policy, your pension provider claims tax back from the government at the basic rate of 20%. In practice, this means that for every £80 you pay into your pension, you end up with £100 in your pension pot. If you are a higher rate (40%) taxpayer, it is up to you to apply for the additional 20% tax relief, the difference between basic and higher rate.
When you do retire, there are several different pension options available to you and your IFA can help you exchange your pension fund into a lifetime income by purchasing an annuity, whereby at least 75% of your pension fund is handed over in return for a regular income payable normally until your death.
Alternatively, you can choose to go into income drawdown until you reach 75, when government legislation means you must convert your pension fund into an annuity.
Income drawdown allows you to draw an income directly from your pension fund, while the balance of the fund remains invested.
How much your pension fund is worth at retirement will depend entirely on how much you have put in since taking out your policy and how the investments have performed.
Your pension provider will send you a pension forecast every year that will tell you how much your fund is worth and how much you can expect to receive when you retire if you continue to contribute at your current level.
If you need any help and advice on your pension then get in touch with us, we are a team of Independent Financial Advisors.
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