Setting Up a Personal Pension

What is a personal pension?

Personal pensions work by making a lump sum or regular payment into a plan usually monthly and they grow tax-free to retirement. Additional contributions can normally be added at any time and you can take a payment holiday whenever you need.

Your contributions are normally topped up with tax relief from HMRC at your marginal tax rate. So if you pay tax at 20% your contribution of £100 will cost you only £80. If you are a higher rate taxpayer you can claim back additional tax relief through your tax return.

There are many choices and important considerations to take into account if you are considering setting up a personal pension including the charges, premium minimums and limits, investment options and transfer costs should you want to move the scheme to another provider in the future. For larger investments, you should consider a self-invested personal pension that will provide an even wider range of investment options which can include commercial property.

What is the maximum I can save in my pension?

Normally tax relief is available on contributions to your pension up to £40,000 per annum, known as the annual allowance, and you can top up the contribution with any allowance you didn’t use for the previous three tax years. The Annual Allowance was £40,000 for tax years 2014/2015, 2015/2016, 2016/2017 and 2017/2018.

For contributions over £3,600 and up to £40,000 per annum, you must have gross earnings at least equal to the amount of the annual total contribution to qualify for tax relief on the whole amount. You will qualify for a tax benefit of 20% of your contribution up to £2,880 per annum even if you don’t pay any income tax. A £2,880 contribution will put £3,600 into your pension pot. (Any amounts paid by your employer must be added before you check against the £40,000 allowance).

You can continue to contribute to a pension plan, even if you have flexible accessed your benefits. But in this case, you are restricted to the Money Purchase Annual Allowance which is now just £4,000, and you will pay tax on amounts above this. You cannot top up the Money Purchase Annual Allowance with an unused allowance from previous years.

Over your working life, it’s possible to build up a fund of up to £1 million without tax consequences (The Lifetime Allowance). Above this level, you may have to pay tax at up to 55% on the excess. So it’s important to monitor your contributions if there is any likelihood pf your breaching this limit, now or in the future.

The importance of seeking professional advice

Eastcote Wealth Management has years’ experience in this area and can help you to access the pension options available to you and help you to maximise your pension on retirement. Please be careful with your hard-earned pension savings and think very carefully before cashing them in or moving them. If you’re offered a scheme which seems too-good-to-be-true, it probably is. For further information, see

Please do not hesitate to contact us if you would like to discuss your retirement options in more detail. Remember, we offer a free no obligation consultation and will be happy to help if we can. We take a holistic and long-term approach to wealth management, opting to build a lasting relationship with you and provide a tailored solution for all of your investments.

A pension is a long-term investment. The fund value may fluctuate and can down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation. Occupational pension schemes are regulated by the pensions regulator.