What is a private retirement scheme?

A private retirement scheme is one not provided by the government, so anything besides the State Pension. This can be an occupational retirement scheme or workplace pension that’s been set up by your employer.

But for this article we’ll be talking specifically about a personal pension that’s been set up by you.

It’s a way to save money for your retirement by paying in regular contributions or one-off payments into a fund. The money you take out at retirement will be based on how the fund has performed.

Anyone! Even if you have a workplace or occupational pension, you can still open a pension for yourself.  With a workplace pension, your employer is committed to making contributions as well, but a personal pension can be a great top up alongside this. Or in place of it if you don’t have an occupational pension. 

Personal pensions are a flexible way to save for retirement. You can choose when you pay in, and how much. You can tweak payments, or stop and restart them, whenever you like. This could make it the ideal option if you’re self-employed or you want to save alongside a workplace pension.

You’re in control of how you invest, whether you’re new to investments or more clued up, there’s an option for you.  But, as with all investments, there's a risk that the value may fall as well as rise, so you could get back less than you put in.

The tax relief available with a personal pension could be a great way to invest in your retirement. This could give more financial security than relying solely on the government state pension.

Tax relief on private pensions

When thinking about how much money to save into a pension plan, it’s important to understand how pension tax relief works. This is the money you receive on top of your regular contributions by the government as an incentive for paying into a pension. The pension provider will automatically claim this at the basic rate and add it to your pot.

You’ll get tax top ups of 25% on contributions that you make.

As an example:

And if you’re a higher earner you may be able to claim back even more.

Tax benefits are subject to change, interpretation and depend on the individuals circumstance.

For more information about paying into a pension and tax relief, see our page on making pension contributions.

Flexible payments

With a personal pension, you can choose how much you pay in, though you need to beware of the limits.  There is a limit on how much tax relief is available, and on the total amount of pension benefits you can build up. You can find more about these limits at www.gov.uk/tax-on-your-private-pension. Some personal pensions, including Aviva's, can only accept personal contributions that qualify for tax relief.

You also have the choice of regular contributions or one-off payments and you can stop and start these payments as and when you need to.

Flexible investments

A personal pension allows you to choose your own investments and from a much wider range than other pension types, giving the potential for greater returns.

You’re free to choose investments that align with your personal values and goals.