A personal pension plan provides you with an income in retirement. Your contributions are invested, providing you with a retirement fund that you can use to provide an income and a tax-free lump sum. With a personal pension, you are in control; you decide how much to contribute, how regularly, and where the money is invested. The more money you put in, the more money you have to invest for your future – and the better your underlying investments perform, the higher the value will be.
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What are my options?
Personal pensions are independent of the basic state pension and any company pension that you may have in place through your employer. There are three basic types of personal pension plan; the one that is best for you will depend on factors including your age, attitude to risk and the amount you are able to contribute.
- Stakeholder pension plan. As the simplest pension option, stakeholder pension plans are designed to encourage lower earners to save for their future. They are cheap and efficient, and often have a more restricted range of investments available. Generally you will find index tracker-type funds and multi-asset managed funds within these plans, which will suit most people’s basic needs.
- Individual personal pension plan. Individual personal pension plans often have access to a wider range of funds, which will make management easier if you are looking to add value over a basic managed or tracker fund. Thanks to the greater fund choice available, individual pensions suit the pension requirements for the majority of people.
- Self-invested personal pension (SIPP). SIPPs are the most sophisticated personal pension plan available. These flexible vehicles can give access to commercial property, funds, shares, bonds, gilts and cash within your portfolio – along with some more esoteric investments as well. Generally geared towards more experienced investors, a SIPP allows you to build a portfolio specifically tailored to your needs.
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Finding the personal pension that’s right for you
Before buying any pension plan, ask yourself these questions:
- How do you want to spend your retirement years?
- Realistically, how much pension income will you need to achieve this?
- How much can you afford to contribute each month?
- When are you planning to retire, and how long do you have to save between now and then?
- What risks are you prepared to take with your capital?
When you have the answers to these questions in mind, seeking professional advice from a trained adviser at Maxim Wealth Management will help you to make the best decision for your retirement. The earlier you begin putting money away, the more those contributions will add up over time – and they longer they will have to grow.