To start a private pension, you need to open an account with a pension provider like Wealthify (Managed), Hargreaves Lansdown (DIY) and make regular contributions. It’s important to start paying into your personal pension as early as possible as compound returns mean that the longer your money is investments the more it will be worth when you retire. In this guide we cover how easy it is starting a private pension, the best pension providers for different types of investing and what to watch out for.
🧑🎓Follow these five steps if you want to start a private pension:
- Decide if you want to manage your pension yourself (SIPP) or have a professional do it.
- If you want to manage it yourself and choose what you invest in through a self-invested personal pension) open a SIPP account with a broker like Hargreaves Lansdown, Interactive Investor or AJ Bell.
- If you want a professional to manage your investments, choose a digital wealth manager like Wealthify, Moneyfarm or Nutmeg, or if you have over £250,000 to initially invest, a traditional wealth manager would be more appropriate.
- Once your pension or SIPP account is open, deposit your initial funds (some providers let you start from as little as £1 – you can compare private pensions here).
- Set up your regular contributions – this is usually a monthly amount just after you are paid your salary.
🤔Note: Pensions tie your money up till retirement
When you start investing in a personal private pension you cannot access the money until you are at least 55 or until you. So it’s important that whilst you should plan to have enough money to live off when you retire, you cannot access it in an emergency. A good way to invest tax efficiently is to also have a stocks and shares ISA account (in fact it is possible to have an ISA worth £1m.).
⚠️What to watch out for! Exit fees
Some pension providers charge a high percentage of your pension if you decide to leave them and transfer your pension elsewhere. It’s really important to avoid these types of firms as they rarely have the interests of their customers at heart. You can compare exit fees in our private pension provider reviews.
How much to invest in a private pension
As a rule, adviser of your current income when you retire. Furthermore, they suggest that you need 20 – 25 times your retirement expenses. So, if you spend £30,000 per year, you’ll need £600,000 – £750,000 in pensions, investments and savings.
It is worth deciding how your lifestyle will likely change when you retire and the expectations you have from life after work. For example, will you spend more on travel and holidays but less on commuting? Will you stay in your current house or downsize? What about the cost of healthcare as you age?
A financial adviser should help you devise a timeline that can help manage your expenses, which in turn helps you to decide when to take lump sums, how much to drawdown, and when or if you want to buy an annuity.
- Related guide: How to invest for a monthly income
Tracking down old pensions
If you want to combine all your old workplace pensions into your private pension you can do so using the Government has a pension tracing service, which can help you track down any lost pensions by post and online https://www.gov.uk/find-pension-contact-details
You can also use the Government’s Unclaimed Assets register, which can also locate misplaced savings and investments. It costs £25, and more information can be found here: https://www.uar.co.uk/
Before you do transfer an old pension, you should always check with a qualified financial advisor as there may be significant benefits that you are unaware of and may lose when you move providers.
Starting a private pension if you are self-employed
While employers are obliged to offer all employees a workplace pension, the self-employed need to set a private pension up themselves. There are a growing number of providers offering products aimed at the self-employed market, which offer the flexibility individuals need when they work for themselves.
The rules allow you to contribute your entire annual income up to £40,000 per year, and this will be matched by tax relief of 25%.
Basic private pensions offer limited investment choice, so it may be worth considering a SIPP, which offer far more options if you are self-employed. However, SIPPs require a level of commitment and expertise, and this must be considered before taking out a plan.
Setting up a private pension for your children
To start a private pension for your children, you can open a Junior SIPP if you want to choose exactly what you invest in or a managed junior pension if you are happy for an investment manager to do it. You can open a pension for your children if they are under 18, and you can invest a maximum of £2,880 per year (£3,600 after tax-reflief). When they turn 18 it turns into a normal SIPP or pension.
Richard is the founder of the Good Money Guide (formerly Good Broker Guide), one of the original investment comparison sites established in 2015. With a career spanning two decades as a broker, he brings extensive expertise and knowledge to the financial landscape.
Having worked as a broker at Investors Intelligence and a multi-asset derivatives broker at MF Global (Man Financial), Richard has acquired substantial experience in the industry. His career began as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson), following internships on the NYMEX oil trading floor in New York and London IPE in 2001 and 2000.
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Under Richard’s leadership, the Good Money Guide has evolved into a valuable destination for comprehensive information and expert guidance, specialising in trading, investment, and currency exchange. His commitment to delivering high-quality insights has solidified the Good Money Guide’s standing as a well-respected resource for both customers and industry colleagues.
