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A personal pension scheme is a general term used for an arrangement between an individual and a pension provider. This is usually an insurance company but may also be a friendly society, bank, building society or a unit trust company.
Contributions into the scheme may be made by the individual or by their employer on their behalf and may be made in a single payment or by regular amounts. Products on the market currently are extremely flexible both in making contributions and taking benefits.
Benefits can be taken at any time after age 57 if the plan rules allow, or earlier in the case of ill health. In the past, legislation required benefits to be taken before age 75, and many plans still contain this restriction. Part of the fund (usually 25%) may be taken as a lump sum at retirement.
Personal pensions are money purchase arrangements so the amount of pension you will get depends on:
• the amount of money paid into the scheme
• how well the investment funds perform
• the 'annuity rate' at the date of retirement - an annuity rate is the factor used to convert the 'pot of money' into a pension
Your personal pension scheme provider should send you a statement each year telling you how much your pension pot is worth.
