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We do not advise on specific pension providers, but we can put you in touch with an Independent Financial Adviser (IFA).

Personal Pensions are one way of providing for retirement.  Some people successfully fund their retirement by other means, but for most people a Personal Pension is a sensible part of their planning.

People who do not pay tax and those who have a marginal tax rate of 10% or 22% get 22% tax relief at source on Personal Pension and Stakeholder contributions.  For every £78 paid by the policyholder, the pension fund receives a tax refund of £22 and has £100 to invest (subject to charges).  The tax liability of a higher rate tax payer will be reduced by a further £18, or £22.50 if they have sufficient dividend income.  Yes, it is correct that the highest rate of tax is 40% and that the highest rate of tax relief available is 44.5% - so much for a "simple" tax system.

Starting a Personal Pension at a young age allows your investment to grow for more years.  Your first years premium may be modest, but the accumulated value of that premium could be substantial by the year prior to your retirement.  It is the growth on the value at that date which is lost for every year you delay starting your pension.

Stakeholder pensions provide an opportunity for parents and grandparents to fund premiums for children up to £3,600 gross (£2,808 net but no higher rate relief) from birth. One estimate is that contributions for a new born baby until their 20th birthday will produce a fund 5 times greater at age 50 than if the child had paid the same contributions between the ages of 30 and 50.  This is because the money remains invested for 30 years longer.  If the child dies before age 50, the fund is returned to their estate, but otherwise nobody can get at the fund until the child reaches age 50, no matter what their lifestyle.

There is a helpful premium calculator at http://www.norwich-union.co.uk/pensions/front.htm but we are not making a recommendation for any individual provider.  The Norwich Union site emphasises the need to consult an IFA to consider your personal circumstances.

Below is a brief outline of the limits on pension contributions which can attract tax relief.

Personal Pension Plans (PPP) were introduced on 1 July 1988.  Prior to that date the self employed and those in non-pensionable employment were able to contribute to Retirement Annuity Plans (RAP).   Existing RAPs can continue to receive premiums but new ones cannot be taken out.

An employer can make a payment directly into a PPP for an employee.  If the circumstances are correct neither the employee nor employer pays a National Insurance Contribution on the premium.  This can be a very worthwhile saving.

Relief for contributions is normally given against income in the year in which contributions are paid.  It is however possible to elect for the premiums to be treated as though they had been paid in the previous year, or in some cases the year before that.  A claim had to be submitted by 31 January 2002 for a premium paid in the year to 5 April 2001 to be treated as paid in the year to 5 April 2000.  The procedure for a carry back claim is different for premiums paid after 5 April 2001 - the claim has to be made before the premium is paid and before 31 January.

There are limits on the percentage of net relevant earnings which can be paid as premiums.  These limits vary with age and are different for PPPs and RAPs.  The percentages are -

Within the above percentages a maximum of 5% may be allocated to life assurance.  This can be an efficient method of providing life cover which otherwise does not normally attract tax relief.  One disadvantage is that the life assurance cover may have to stop if you have no earnings.

If you do not have sufficient net relevant earnings in the current year, any surplus of allowable premiums over actual premiums paid in the last six years may be used to enable premiums to be paid.  This carry forward provision ceased from 5 April 2001 for Personal Pension Contributions, but Retirement Annuity Premiums are not affected.

We can calculate your allowable premiums.

The Financial Services Authority now provides Comparative Tables showing details of a number of pension schemes.

See also NIC Summary, Retirement, Self Invested Personal Pensions, Stakeholder Pensions, Statutory Money Purchase Illustrations.

Reminder - disclaimer applies. Please feedback your comments.  This page was last modified 26 October 2002.