Personal Pensions

Personal Pension Plans (PPP) have now been around since mid-1988. They were introduced by the UK government to enable the self-employed, and employees working for companies not operating a group pension scheme, to build up a pension fund for retirement.

PPPs are money purchase schemes with contributions receiving tax relief. An employer may contribute to an individual’s PPP. Such plans can move with individuals when they change jobs, as it is personal to them.

To be eligible to invest in a PPP and receive tax relief on personal contributions, an individual investor must be under 75 years of age, and resident in the UK (there are some exemptions for individuals who work for the UK Government or have left the UK in the last few years).

Contributions can also be made by your employer or a third party e.g. parent or spouse. The minimum contribution will vary between providers but is usually around £20 per month and they can be stopped and started at any time.

Given the many tax advantages available with regard to funding a personal pension, there are limits to the tax-relievable contributions that can be paid. Individuals are able to make contributions of up to the greater of £3,600 or 100% of their annual earnings to all of their pensions each tax year and receive tax relief on them.

There is an annual limit on the total amount of pension contributions that each person can make without incurring a tax charge (this includes employer and employee contributions). This is called the Annual Allowance. Where the total employer and/or individual contribution exceeds the Annual Allowance, a tax charge will apply.

The rate of tax will be determined by your taxable income in the tax year. It may be possible for contributions in excess of the Annual Allowance to be paid in some circumstances under the rules which allow unused Annual Allowance from the three previous tax years to be brought forward and added to the current year’s Annual Allowance.

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