Pensions and Self Invested Pensions

Saving for retirement is something that most of us put off as long as we can. But the reality is that the sooner you start paying into a pension the higher your income in retirement is likely to be. If you are working you are usually building up the right to a basic state pension - and possibly an additional State pension - but these are unlikely to be enough to give you the standard of living you want.

Pensions represent a highly tax advantaged means of saving for retirement. Any contributions you pay qualify for income tax relief at your highest marginal rate. If you are a higher rate taxpayer, for every £1 invested costs you just 60p. Contributions grow in a tax advantage fund.

If you are employed and your employer offers access to a pension scheme, it would almost certainly pay to join, as your employer will be contributing to the plan - often at substantial levels.

Since April 2006, the rules governing pension contributions have been relaxed. It is now possible to make personal contributions and receive tax relief up to the level of your earnings (subject to an annual cap currently £225,000.) There is an overall cap on the fund you may accrue (this is called the 'Lifetime Allowance') and this currently stands at £1,600,000.

There are different types of pension schemes to which you can contribute (in addition to your employer's scheme).

Stakeholder Pensions

Feature low minimum contributions and a cap on charges. Represent good value and a good home for those starting to save for retirement.

Personal Pensions

Likely to offer a greater range of investment choices and funds than a stakeholder pension, but often carry higher charges and care is required when choosing a provider.

Self Invested Personal Pensions (SIPP)

SIPPs are designed for people who want to manage their own fund by dealing with, and switching, their investments when they choose. They may have higher fixed charges than other personal pensions or stakeholder pensions. For these reasons, they are more suitable for large funds and for people who are experienced with investing.

With standard personal pension schemes, your investments are managed for you within the pooled fund you have chosen. SIPPs are a form of personal pension scheme that give you the freedom to choose and manage your own investments, or you can employ and pay for an authorised investment manager to make the decisions for you.

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