Personal pensions are retirement savings plans which are taken out by a person in their own right and into which they pay regular contributions during their working life.
These contributions are managed by a pension provider, such as an insurance firm or investment company, and the money is invested in assets such as shares, bonds or funds and earns interest over time. The total contributions, and interest earned on top, are then freed up and given to the holder of the pension plan upon their retirement.
This money can then be used to buy an annuity, which will provide a regular income to the person who took out the pension during their retirement. Up to 25% of the money in the pot can be taken as a lump sum.
Like all pension schemes, you do not pay tax on the money you put into a pension plan. For every £78 paid into a personal pension plan, the government effectively gives you £22.
Personal pension plans are more flexible than occupational schemes or stakeholder pensions because, in some cases, you have a say in where the money is invested.
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