Consider a private pension
What’s a private pension?
Your pension income can come from three main sources: the government, your employer and you. The state pension is useful, but if you can’t live on £9,300 a year, you’ll need another source of income in retirement. Your employer is obliged to contribute to a pension for you, but if you think you’ll need a bit extra – or you are self-employed or not working – a personal pension can be a good option.
With a personal pension you choose the provider, the underlying investments and how much you want to contribute per month. Government tax relief of 25% is paid in automatically (providing you have paid enough tax), while higher and top rate tax payers will need to claim any remaining tax relief through their tax return.
Why do you need one?
There are a number of key reasons why you might need a personal pension:
You haven’t got a pension elsewhere: if you are self-employed or run a company, you won’t have an employer to help with contributions and will need to make your own pension provision.
You’re not working: if you’re taking time out, perhaps for caring responsibilities, you can get your partner to contribute to a personal pension for you. If you have no earnings, you can only contribute £3,600 per year, but it is still worth doing.
You want to put in more than you’re currently contributing through your employer – if you can afford it and have high enough earnings, you can currently put £60,000 a year into your pension.
You want a bit more flexibility – the problem with workplace pensions is that your investment choice may be limited and there may be other restrictions. With a personal pension you have much more freedom.
What do you need to do?
You need to sign up to an investment platform that offers personal pensions (also known as SIPPs – self-invested personal pensions). We give the Boring Money view on the major SIPP platforms here - https://www.boringmoney.co.uk/pensions/pensions/. Pick the one you feel most comfortable with, where you find the technology easy to use and there are tools to help you manage your SIPP. That’s usually the easy bit.
The more complicated bit is to decide what you’re going to put into your shiny new pension once you have it. Most platforms have tools to help you decide. They will look at how long you have to retirement, whether you can tolerate the highs and lows of stock markets and your contribution levels. This can sound daunting, but there will be recommended funds and investment strategies. If you get stuck, there are usually advisers on the end of a phone line that can help point you in the right direction.
Are there any pitfalls?
Your personal pension is not the place to experiment with that Mongolian mining company, or blue-sky technology idea. Make sure your personal pension is balanced across a range of countries, sectors and themes.
How much will it cost?
The amount you’ll pay for a personal pension will vary with individual platforms and how much you have to spend. Boring Money research shows that private pension fees vary from as low as £15 per £10,000 to as high as £230. In general, there will be a platform cost, a SIPP cost and then costs for the underlying investments.
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