Lockhart Grey Financial Planning Ltd

Personal Pension Plans (PPPs) were originally designed for the millions of employed & self-employed individuals who has no access to a company pension scheme.

Since the 1970’s there have been many types of pension, and sometimes different types of scheme could have been given the same name. For example there were Retirement Annuities, which were also sometimes called, for marketing purposes, Personal Pension Plans. The Government then created a new legal framework called Personal Pension Plans. The result – confusion. Add in Group Schemes, Group PPP, Money Purchase Schemes, S32 Buyout Policies and more, and you can see why this is an extremely complex area.

Most people can rely, on some level, of State Pension. However the maximum Basic State Pension amounts to only £4,716 per annum for a single person, or £7,543 per annum for a married couple (where the woman has no personal entitlement, and derives hers from her husband’s full entitlement). Therefore most people will also have to consider arranging additional pensions as an essential part of their financial planning.

Introduced in July 1988, they were part of a government strategy to extend pension choice & encourage those people not in company schemes to build up fund for their retirement; one that could cater for their retirement needs more realistically than the state. Many financial institutions offer PPPs, though in the main these are run by the large insurance companies and banks.

We can research the market on your behalf to find a suitable Pension plan, it may be that a PPP meets your needs for your retirement provision. Following the recent sweeping changes that were made on the 6th April 2006 to pension legislation, these contracts are extremely flexible and can allow contributions to be made of up to 100% of your earnings. Furthermore these plans can be set up for non-working spouses and also children and grandchildren where up to £3600 can be invested annually. (The Annual Allowance and Lifetime Allowance applies)

How they work

Unlike many company schemes, all personal pensions work on a ‘money purchase’ basis. This means that the money you save each month or each year into your Personal Pension Plan is invested (typically in investment funds) and is then used at retirement to provide your
pension benefits. So in theory the more that you save, the better your pension should be at retirement.

At Retirement

On reaching retirement, you use the money that has built up in your individual personal pension to purchase pension benefits, which can be taken in the form of either income or income with a tax free lump sum (The Pension Commencement lump sum). The benefits can also be transferred to another type of plan which can provide unsecured pension benefits, these types of plan allow additional flexibility as pension benefits may be drawn whilst your pension fund remains invested.

The value of your pension available at retirement is mainly dependent upon:

• How much money you have paid in over the life of the plan
• The length of time that you have been paying into your retirement plan
• How well the money has grown ie how well the fund has performed
• The annuity interest rate that the provider applies to your pension fund (if you choose/need to take an annuity)
• Level of Pension Commencement lump sum taken. (Up to a maximum of 25% of your pension fund can be drawn as tax free cash)

So a Personal Pension Plan is really a long term savings plan (albeit a very tax efficient one) that is designed to produce a fund at retirement.

At retirement you can make provision to protect your pension from the eroding effects of inflation, protect your income in the event of your death and make provision for your spouse or dependants. (see the Annuities page). Pension benefits can currently be drawn from age 50 onwards (age 55 from 2010 onwards).