A private pension is a tax-efficient way to invest and save for your retirement and can give you greater control over where your money is invested. We have ranked, compared and reviewed some of the best FCA-regulated private pension accounts in the UK to help you choose the most appropriate personal pension for your investment objectives.
Best Private Pensions
Our picks for the best private pension accounts are based on over 7,000 votes in our annual awards, our own experiences testing the accounts as well as an in-depth comparison of the features that make them stand out compared to alternatives.
- Penfold Pension – best overall private pension provider 2022
- PensionBee – best digital pension for combining old pensions
- Nutmeg – best for beginners wanting a simple online pension
- Profile Pensions – best digital pension customer support
- Moneyfarm – best digital pension for starting small
- Hargreaves Lansdown – best overall DIY pension account
- Interactive Investor – best for fixed fee DIY pension investing
- AJ Bell Youinvest – best for low-cost DIY pension investing
Private Pension Reviews
In our private pension reviews, we highlight the pros and cons of each account, what you can invest in, how much it costs, and how they compare to the competition. We also explain what makes them different and tell you who they are most appropriate for so you can choose the best private pension for your investing.
Penfold Pension
Pros
✔️ Personal advice on hand
✔️ Combine all your old pensions
✔️ Low fees
Cons
❌ Limited choice of investments
❌ New to the market
❌ Not as controllable as a SIPP
Penfold Pension Review
Penfold is an online provider of pensions. A digital alternative to traditional pension companies, it enables users to quickly set up a pension, and manage it online or with its app.
In this guide, we review Penfold and look at what it offers. We also compare its pension to products offered by competitors such as PensionBee, Nutmeg, and Hargreaves Lansdown.
What is Penfold?
Penfold is a UK pension provider that offers a flexible pension designed for private savers, self-employed savers, those who own limited companies, and businesses. It allows customers to set up a pension online with zero paperwork.
A relatively new player in the UK pensions space, Penfold was set up in May 2018, and became regulated by the Financial Conduct Authority (FCA) in May 2019. The company was founded by three technology experts who previously worked at Deloitte and Funding Circle.
Penfold’s goal is to make pensions easy, so it has designed a product that can be set up in less than 10 minutes. To open an account, you simply need to enter your personal details, verify your identity, and make a contribution. You can open a Penfold pension from as little as £1 per month.
The Penfold pension is like any other UK pension scheme in that your contributions are eligible for tax relief. Tax relief can be thought of as a reward from the government for saving for retirement – when you make a contribution into your pension, the government adds money for you too. Basic-rate taxpayers are entitled to tax relief of 20% on their contributions while higher-rate and additional rate-taxpayers can potentially reclaim another 20% and 25% respectively.
What can you invest in?
With Penfold, there are four main investment options.
These are:
- Lifetime. The Lifetime plan spreads your money across many different assets and automatically adjusts your investment risk levels as you approach retirement. The aim is to grow your savings more early on, before gradually shifting your money into safer investments as you get older.
- Standard. With the Standard plan, your money is invested across a wide range of investments and industries. There are four different risk levels you can choose here, depending on your risk tolerance.
- Sustainable. The Sustainable plan is designed for those who want to invest on a socially responsible basis. This fund invests in companies with the highest ESG ratings relative to their peers within each sector.
- Sharia. The Sharia plan is designed for those seeking Sharia-compliant investments. This plan excludes investments in industries such as alcohol, tobacco, pork, weapons, and adult entertainment.
It’s worth pointing out that the Lifetime, Standard, and Sustainable plans are all managed by BlackRock – the largest asset manager in the world – which uses advanced technology to spread capital over a wide range of investments. The Sharia plan is managed by HSBC Global Asset Management, which invests users’ savings across a wide range of different companies that operate in a Sharia-compliant way.
What are the costs?
Penfold charges one transparent annual fee for managing your pension that covers everything within its pension service. This annual fee is between 0.75% and 0.88%, depending on the plan you choose. Penfold automatically deducts a portion of your annual fee from your pension in 12 monthly instalments.
If your pension is larger than £100,000, the annual fee is reduced to either 0.40% or 0.53% (depending on the plan you choose) on the portion of your savings over this amount.
Advantages
- It’s easy to set up. You can set up a pension in just five to 10 minutes.
- Several investment options. There’s a range of investment options to choose from, depending on your requirements and risk tolerance.
- You can adjust and pause your contributions if you need to.
- Investment and saving insights. The ‘Explore Your Pension’ feature gives you visibility into your investments, including a breakdown of the companies you have a stake in. You can also track how much you have saved, and the projected future value of your pension.
- Pension consolidation options. You can transfer and combine multiple old pensions into your account.
- Tax relief. As with other UK pension products, contributions come with tax relief.
Disadvantages
- Limited investment options. Compared to a SIPP (Self-Invested Personal Pension), Penfold does not offer many investment options.
- High fees. Fees may be higher than those of competitors’ products, depending on the size of your account and the investments you select.
Comparing Penfold to other managed pension providers such as PensionBee and Nutmeg, there is not a lot of difference between their products. All three companies offer pensions that are easy to set up and allow you to choose between several different investment plans.
The three platforms do have different fee structures, however. With PensionBee, the annual fee is between 0.50% and 0.95% depending on the plan you choose, and fees are halved on the portion of your savings over £100,000. With Nutmeg, fees range between 0.72% and 1.14% depending on your investment plan, with lower fees for savings over £100,000. So, Penfold may be more expensive than PensionBee and Nutmeg.
Comparing Penfold to traditional pension providers such as Hargreaves Lansdown, AJ Bell Youinvest, and Interactive Investor – which all offer SIPPs – the main advantage of Penfold is its user-friendly nature. With Penfold, you can set up a pension plan in a few minutes. Additionally, you don’t have to worry about managing your own investments.
On the downside, you have far less investment options with Penfold. With Hargreaves Lansdown, AJ Bell Youinvest, and Interactive Investor, you can invest in UK shares, international shares, funds, exchange-traded funds (ETFs), investment trusts, and bonds. However, with Penfold, you only have a few investment plans to choose from. Penfold’s fees can also be higher than SIPP fees. Hargreaves Lansdown’s annual SIPP fee, for example, is 0.45% which is significantly lower than Penfold’s annual fee of between 0.75% and 0.88%.
PensionBee Pension
Pros
✔️ Combine all your old pensions into one
✔️ Simple choice of funds
✔️ Low fees
Cons
❌ Limited choice of investments
❌ New to the market
❌ No face to face advice
PensionBee Pension Review
Combine all your old pensions in one place and invest in pension plans managed by some of the world’s biggest money managers: State Street Global Advisors, HSBC, BlackRock and Legal & GeneralCombine all your old pensions in one place and invest in pension plans managed by some of the world’s biggest money managers: State Street Global Advisors, HSBC, BlackRock and Legal & General
Compared to other providers the process feels much easier and more transparent. There is just one annual fee rather than multiple hidden fees and you can choose from a reasonable selection of funds to suit your tastes. However, others will offer more investment choice.
PensionBee Charges and Fees
Downloading the app is free. You’ll only be charged once you choose a pension plan. These are charged very simply with an annual fee which ranges from 0.5% to 0.95% depending on what plan you choose. This will come out of your pension pot and Drops by half once you’ve saved more than £100,000. The more you save the cheaper it becomes.
The fees are relatively transparent and low cost compared to other providers. Having just one fee ensures you know what you’re paying and how much. It also improves the overall fund performance because less of your pension pot goes to the provider.
PensionBee Pension Plans
Their pension plans are managed by global money managers such as BlackRock, HSBC and Legal & General. Costs vary between 0.5% and 0.95% depending on the plan.
Plans include:
- Tracker plan: Follows the market.
- Tailored: Invests money differently as you move through life.
- Fossil fuel-free: As the name implies the plan avoids toxic industries such as fossil fuels and tobacco.
- 4Plus: Aims for long term growth of 4% year on year above the cash rate by actively managing your money.
- Future world: Invests in companies which pledge to move towards an environmentally friendly future.
- Shariah: Restricts investments to companies which are shariah compliant.
- Preserve: Plays it safe with short term investments in established, credit worthy companies.
- Match: A mix of investments which follow the strategies of the wider pensions market.
- Pre annuity: Invests to provide returns broadly in line with the cost of purchasing an annuity.
These plans provide good value and decent performance, although other companies may offer a greater degree of choice or flexibility.
PensionBee Calculator
If you’re uncertain how much you should be saving, the PensionBee calculator can give you some pointers. To use it you set a retirement goal, namely how much you want to have saved by the time you retire, add your details, your savings and contributions to see projected income for any plan.
If you’re still working, therefore, it allows you to plan ahead and work out how much you should set aside each month in order to have a reasonable income when you retire. It sets expectations and help you stay on track to achieve your goals.
PensionBee Tracker Plan
The tracker plan allows you to invest in global stocks, shares and cash. It is managed by State Street Global Advisors and follows the movement of markets. It’s a medium risk option designed for long term growth and lets you diversify your investment away from the general FTSE 500 funds. It’s a nice easy click and forget plan which requires minimal effort from you and benefits from the diversification which comes from the different markets around the world.
You’ll pay an annual fee of 0.5% which will be cut in half once your savings reach over £100,000.
PensionBee Tailored Plan
We all evolve over time and so do our needs from an investment plan. The tailored plan is a medium risk plan which shifts the emphasis of your investments as you hold. Where it invests will vary depending on when you are born. For example, if you’re getting closer to retirement age it might switch investments into lower risk options to reduce the chance of you suffering from a market shock.
It is managed by BlackRock and has an annual fee of 0.70%. This reduces by half once your investments rise over £100,000 so you earn more as you save.
PensionBee Fossil Fuel Free plan
The climate crisis is concentrating everyone’s minds at the moment. Ethical and sustainable investing has gone from a niche part of the market to the mainstream. PensionBee has a number of responsible investment options, and this one is great for anyone who does not want to support industries responsible for polluting the planet.
Managed by Legal & General this plan excludes fossil fuels and tobacco companies in favour of more sustainable companies which are aligned with the goals of the Paris Climate Accords.
It’s a high-risk plan and comes with an annual fee of 0.75% which will be reduced by half for savings over £100,000.
PensionBee Future World Plan
One of the highest risk plans on PensionBee’s books is also one of the most sustainable. Managed by Legal & General it invests in those companies which actively move us towards a low carbon economy. Such companies may be riskier, but they offer the prospect of higher growth as they are more in tune with where the market is heading.
It invests only in equity with almost half of investments taking place in North America. This is a great option from someone who wants to do more than just avoid certain sectors such as fossil fuels, but to support those companies which are building the economy of the future.
The plan is at the top end of the cost spectrum for PensionBee with an annual fee of 0.95%.
PensionBee Sharia Plan
Shariah finance has been gaining in popularity in recent years as a growing Muslim population seeks out investments which are in keeping with their religious values. This plan only invests in Shariah compliant companies which have been approved by an independent Shariah committee.
The plan is positioned as relatively high risk, although there is some evidence to suggest Shariah financial products are less exposed to market shocks than others. It’s a theory which would seem to be supported by the fund’s recent performance. While most returns have dropped off sharply in 2020, its performance has remained fairly strong. It is managed by State Street Global Advisors and costs 0.95%. As with all other plans, the annual fee falls by half once savings reach more than 50%.
PensionBee Preserve Plan
A safety-first option. Managed by State Street Global Advisors, this plan makes short term investments in safe, credit worthy businesses. It’s a great option for someone who wants a low-risk plan although it may also bring lower returns. The plan is invested one hundred percent in fixed income assets which are considered more stable. It is the safest plan you can choose from in the PensionBee portfolio and only invests in firms which are financially sound with a strong track record.
It safeguards your savings against short term market shocks and is a good option if you’re approaching retirement and want to protect your gains.
The annual fee is 0.50%, which drops to 0.25% for savings over £100,000.
PensionBee Match Plan
Want to follow the smart money? Pick the PensionBee Match plan. It follows the strategies of the wider pensions industry and helps you mimic the best strategies currently being used without the need for a degree in finance.
It follows a similar trend in which people are choosing investment options which mirror the choices of professional traders.
Managed by BlackRock, the plan places your funds in a mix of assets based on the distribution of the wider pensions industry. At present, this means it is 63% invested in equity. Each month they adjust the plan so it’s up to date with the latest moves from other fund managers. In theory gives you the benefits of a low-cost passive investment approach with some of the features of active investment.
It comes with an annual fee of 0.60% which drops by half once savings rise over £100,000.
PensionBee Pre-Annuity Plan
The pensions annuity plan allows you to invest in bonds and delivers returns which are broadly in line with the cost of purchasing an annuity. It is managed by State Street Global Advisors and is a good option if you’re considering using your pension pot to purchase an annuity or any other guaranteed income product. This allows you to experience returns that aim to match the cost of purchasing an annuity in the meantime. It is almost totally focused on bonds and charges a 0.70% annual fee which is taken from your pension pot.
This fee is already highly competitive and will reduce by half when your savings grow beyond £100,000.
PensionBee Alternatives
PensionBee is one of a number of new wave pension providers using the internet to provide a more accessibly and affordable approach to investments. Compared to a traditional fund, such as Hargreaves Lansdown, you can expect lower costs and a simpler process, along with plans which have been shown to perform well on the markets. However, there may be less choice available or ability to manage the fund yourself.
Other internet pensions providers such as Nutmeg or Moneyfarm offer a similar approach. They all base themselves on simplicity and offer an ‘always on’ approach’. However, they differ slightly in form and approach. Nutmeg offers a wider set of services such as ISAs while PensionBee is mainly focused on pension consolidation.
PensionBee 2020 performance
The pandemic has been tough on pensions. Compared to the previous year’s returns are, for the most part way down. The one bright spot is the firm’s Shariah product which returned 23.16% last year, only slightly down from around 28% in 2019. Others have taken a larger hit. The Match plan, for example, is down to 4.29% from 15.82% in 2019. The Preserve plan continued to offer the lowest returns in both years. However, the good news is that the plans have largely matched the wider industry benchmark and can expect reasonable growth after the pandemic.
PensionBee 2019 performance
2019 saw pension funds round the world perform strongly. Each of PensionBee’s funds performed around or slightly above the benchmark. The Shariah fund offered a return of 28.78% mirroring a growing interest in shariah compliant finance, while the future world’s fund also performed well with 20.22%. It suggests responsible investments are already providing short term returns.
Overall, the funds’ close correlation with benchmarks supports the notion that PensionBee offers the prospect of an affordable service alongside a relatively strong and consistent track record of performance.
Winner: Best Personal Pension Account Good Money Guide Awards 2021
Nutmeg Pension
Pros
✔️ Easy to use
✔️ Low cost
✔️ Simple investment choices
Cons
❌ Limited choice of investments
❌ Smart Alpha not available
❌ Almost too much access
Nutmeg Personal Pension Review
All three Nutmeg investment styles are built by experts and use exchange-traded funds (ETFs) to diversify across stocks, bonds, industries, and countries.
Nutmeg offers both the ability to build up a pension and to draw it down when retirement comes. While it may not be entirely necessary or appropriate to look at your pension continually since it is a long-term investment, Nutmeg offers ‘24/7 access to your account, we’ll keep regular contact to explain where your pension is invested and how it’s performing’.
More helpfully, Nutmeg’s pension team will notify investors six months and again six weeks prior to reaching their retirement date ‘to let you know if you’re on track’.
Nutmeg’s personal pension offers a range of investment styles. These are the same as the ISA range except for the smart alpha style, which is not available.
On a £90,000 investment in the fully managed or socially responsible personal pension, investors would pay £12.95 a week. This is made up of 0.75% in Nutmeg fees, a fund cost: of 0.19% and average market spread of 0.05%.
For the same amount invested in a fixed allocation pension, investors would pay £7.77 a week.
Profile Pensions Pension
Pros
✔️ Expert advice
✔️ Can track down old pensions
✔️ Low fees
Cons
❌ Narrow choice of investments
❌ Manager fees on top
❌ Funds outsourced
Profile Pensions Pension Review
Transfer and combine your old personal or workplace pensions into a personalised pension plan. Profile Pensions are independent and will select the best funds for you from the whole of the market. You will have a dedicated, fully qualified pension adviser to contact directly whenever you wish.
Read our interview with Profile Pensions CEO Jordan Mayo here
Moneyfarm Pension
Pros
✔️ Simple investment choices
✔️ Easy to open an account
✔️ Risk-based portfolios
Cons
❌ Large minimum deposit
❌ Not as flexible as a SIPP
❌ ETF investing only
Moneyfarm Pension Review
Invest in one of seven ready-made simple and diverse portfolios with different degrees of risk and reward.
Moneyfarm describes it as a SIPP, standing for self-invested personal pension, but it is really a form of a private pension as your only decision is the risk portfolio that you opt for.
Pension contributions benefit from tax relief from the government, which boosts the amount you are putting in.
The platform chooses a portfolio of ETFs based on your investor profile and chosen risk rating between 1 and 7.
Users can transfer a pension or setup a new one and Moneyfarm will manage your portfolio based on your retirement target date by reducing the risk as the time approaches.
Pensions can currently be accessed from age 55 and Moneyfarm offers a free drawdown option that keeps your money invested and lets you make withdrawals as you choose. You can also speak with one of its investment consultants to discuss your options.
Interactive Investor Pension
Pros
✔️ Wide range of investments
✔️ Fixed account fee
✔️ Established pension provider
Cons
❌ Can be overwhelming for beginners
❌ More expensive than robo-advisors
❌ You have to choose your own investments
Interactive Investor Pension Review
Interactive Investor offers customers the opportunity to transfer an existing pension into its II SIPP or Self-Invested Pension Plan, alternatively, clients can opt to set up a new SIPP from scratch and contribute to that plan.
II do not charge transfer fees, in or out. However, another provider may charge you for transferring your pension out and you should always check whether you would lose any safeguarded benefits in an existing scheme if you transfer this into a SIPP.
On retirement, you can access the funds within your SIPP in one of three ways (or a combination thereof) which are income drawdown, lump Sums or through an annuity though this would be through a third party as II do not offer annuities themselves.
Special Offer: No SIPP admin fees for 6 months when you open a SIPP (saving £60)
Hargreaves Lansdown Pension
Pros
✔️ Great customer service
✔️ Invest in lots of different things
✔️ Fees capped for large portfolios
Cons
❌ You have to choose your investments
❌ Expensive for small pensions
❌ No face to face advice
Hargreaves Lansdown Pension Review
If you’re planning to start a pension or are closing in on retirement age and want to better understand your options, Hargreaves Lansdown offers a range of self-invested personal pensions products (SIPPs). You can start with a bank transfer or move existing pensions over. You can choose between having your pension managed or taking a more active role in your investments. Using the HL app, you can track your investments any time you like from your mobile device.
Options include:
- Self-invested personal pension (SIPP): A low-cost way to take control of your pensions.
- Junior SIPP: Start your child off on the right foot by signing up to a junior pension.
- Compare annuities: A service which allows you to compare annuities.
- Pension drawdown: Allows you to control how income is taken from your pension which can affect tax and retirement planning.
You can invest in a wide range of UK and overseas shares with no set up charge and an annual fee of 0.45%. This reduces the more you have in your account. For funds over £250,000 it drops to 0.25. Once over £1million it falls to 0.1% and there is no charge on values over £2 million.
AJ Bell Youinvest Pension
Pros
✔️ Lots of research and ideas
✔️ Low fees
✔️ Well established with good reputation
Cons
❌ Account opening slow
❌ Incumbent provider
❌ You have to choose your own investments
AJ Bell Youinvest Pension Review
AJ Bell Youinvest’s main pension offering is the AJ Bell Youinvest SIPP. This is a pension product that enables you to manage and control your own savings. You choose how much to save – you can make monthly contributions or contribute lump sums and both you and your employer can make contributions. You can change how much you contribute easily so you can be flexible if your other financial commitments change.
As with other types of private pensions, you’ll receive tax benefits for saving into an AJ Bell Youinvest SIPP. Basic-rate taxpayers receive 20% tax relief meaning that a contribution of £80 is topped up to £100 by the government.
Another retirement option that AJ Bell Youinvest offers is the Lifetime ISA. This is a savings and investment account that is available to those aged between 18 and 40. You can invest up to £4,000 per annum into this type of account and the government will top it up with a 25% bonus, up to £1,000. However, the money can only be accessed (without incurring the penalty charge) when you turn 60 or when you buy your first home.
Compare Private Pensions
Use our private pension comparison to compare each provider by account types, what you can invest in, and fees. We only include private pension providers that are authorised and regulated by the FCA where your funds are protected under the FSCS and where customers have voted for them in our awards survey.
| Private Pension Provider | Private Pension Charges | What can you invest in this private pension? | More Info |
|---|---|---|---|
 | Account Fee: 0.75% – 0.4% Exit Fees: £0 Min Investment: £10 | Lifetime Standard Sustainable Sharia | See Offer |
| Account Fee: 0.5% SIPP Fee: £0 Dealing fee: £0 Exit Fees: £0 Min Investment: £1 | Tracker Tailored Fossil Fuel Free Future World Sharia Preserve | See Offer Winner: Best Personal Pension Account Good Money Guide Awards 2021 | |
| Account Fee: 0.75% SIPP Fee: £0 Dealing fee: £11.95 Exit Fees: £0 Min Investment: £500 | Fixed Allocation Portfolios Fully Managed Portfolios Socially Responsible Portfolios Smart Alpha Portfolios | See Offer | |
| Account fee: 0.84% SIPP fee: £0 Dealing fee: £0 Exit fees: £0 Min Investment: £1 | Tailored pension plan Whole of the market | See Offer | |
| Account Fee: 0.35% yearly SIPP Fee: £0 Dealing fee: £0 Exit Fees: £0 Min Investment: £1,500 | 7 risk-based portfolios | See Offer | |
| Account Fee: £9.99 monthly SIPP Fee: £10 monthly Dealing fee: £7.99 Exit Fees: £0 Min Investment: £1 | Invest through a SIPP in: Shares: Yes Funds: Yes Bonds: Yes ETFs: Yes Ready-made portfolios Yes | See Offer Special Offer: No SIPP admin fees for 6 months when you open a SIPP (saving £60) | |
| Account Fee: 0.45% yearly SIPP Fee: £0 Dealing fee: £11.95 Exit Fees: £0 Min Investment: £100 | Invest through a SIPP in: Shares: Yes Funds: Yes Bonds: Yes ETFs: Yes Ready-made portfolios Yes | See Offer | |
| SIPP Account Fee: 0.25% yearly Dealing charge: £9.95 per online share deal Fund Dealing Fee: £1.50 Exit Fees: £0 for cash £9.95 per holding Min Investment: £500 | Invest through a SIPP in: Shares: Yes Funds: Yes Bonds: Yes ETFs: Yes Ready-made portfolios Yes | See Offer |
What is a private pension?
A private personal pension is an account that the individual sets up themselves – or with the help of an adviser – into which they pay regular contributions, The contributions are invested across different asset classes such as stocks and bonds.
Private pensions explained
The key benefit of saving into a pension is tax relief. Contributions receive 25% tax relief for those on the basic rate and they are free from inheritance tax if you start accessing your pot before you reach age 75. You can also take 35% of your pension tax free once you reach age 55, but you cannot draw before this point, or you’ll pay hefty penalties.
For most people, relying solely on the basic State pension will not provide a suitable standard of living in retirement. Supplementing your retirement income with a private personal pension can mean the difference between just surviving and really living.
Typically, private personal pensions are defined contribution arrangements (sometimes called money purchase), which means the account holder bears all the investment risk. The size of the final pot depends on what you paid in and how well the investments performed.
Private personal pensions differ from workplace pensions set up by an employer into which they will also contribute.
Are private pensions tax efficient?
Yes, private personal pensions are arguably the most tax-efficient way to save in the UK.
When you pay into a personal pension from your net pay, the Government automatically adds 25% as a top-up for basic rate tax relief.
If you’re a higher or additional rate taxpayer, you may benefit from even more tax relief. In addition, any returns made on the investments in your pension are free from capital gains tax.
How private personal pensions work
The market for private pensions is huge, and with so much choice, finding the right plan can be confusing. It is worth considering taking independent advice to find the most appropriate pension for you.
Who offers private personal pensions?
There are plenty of well-known companies offering good value private pensions . These include Nutmeg, PensionBee and moneyfarm. Some will offer access to a wide range of ways to invest, while others will keep it more basic. Typically, these firms charge around 0.5% of your pot to run the plan. They offer access to tracker funds which deliver returns in line with how the main indexes are performing your contributions are spread across bonds, stocks, commodities and property. They will also diversify across geographies providing access to global markets.
You can also invest into a self-invested personal pension (SIPP), which allows you to choose exactly how your money is invested.
You will pay the provider to manage and administer your fund, and fees vary [see fees section].
How do I pay into my private personal pension?
Payments will be made from your bank, and you can opt to increase – or decrease – contributions when you need to, if minimum payment levels are not breached.
Anyone can open and pay into a private pension, and you can also pay into other people’s plans. Your employer can also pay into your personal pensions, but they do not have to. They are only obliged to offer and contribute to a workplace pension scheme.
Most private pension plans can be opened online. Providers will ask you to complete a form and the plan can be open within minutes. You will need to think about how much you can afford to pay in – some providers will ask for minimum payments – and decide on the amount of investment risk you want to take.
How do I access my private personal pension pot?
As soon as you reach age 55 (rising to 57 in 2028), you can access private personal pension savings. The rules allow you to take 25% tax-free and the remaining 75% is taxed at your marginal tax rate. There’s also generally no inheritance tax payable on a personal pension unless it’s first accessed over the age of 75.
The amount in your retirement pot will depend on your contributions and how well the market has performed.
There is a lot of flexibility about how you take the money out of your pension, but what you can do will vary depending on your provider.
Private pensions can be taken as a lump sum or remain invested, allowing you to draw what you want when you want (this is known as income drawdown). Income drawdown costs vary and can include Set-up/ administration fees, charges for the withdrawal of a tax-free lump sum and then fees for each additional withdrawal, as well as ongoing management charges.
PensionBee offers flexible drawdown and does not charge you fees unless you decide to make a full withdrawal of your pension within one year of your first transfer. If your pot has been with them for less than a year and you wish to withdraw it in full, they charge a fee of £480.
Hargreaves Lansdown also offers drawdown with no set up fee and does not charge if you aren’t withdrawing or you are holding cash. The yearly charge for holding investments is 0.45%
It is no longer compulsory to buy an annuity, but they are an option if you want a guaranteed income for life.
What are the Private Pension Annual allowances?
The Government sets limits on how much you can pay into your pension, there is an annual alliance, lifetime and money purchase allowance.
Annual allowance
The annual allowance is the limit of how much you can contribute to your pension each year and still receive tax relief. This is currently set at £40,000 a year.
Lifetime allowance
There is also a lifetime allowance, currently set at £1.0731 million. After this level, a lifetime allowance charge is applied at 25% if the pot is retained to pay benefits. If the member takes the pension as a lump sum, they will pay 55% on the amount that exceeds the lifetime allowance.
Money purchase allowance
If you take more than your tax-free cash from your pension through flexible retirement income or as a lump sum, you may only receive tax relief on contributions to your pension pots of up to £4,000 a year, instead of the normal £40,000 annual allowance. This is known as the Money Purchase Annual Allowance.
Can you nominate someone to get your pension when you die?
Yes, pensions are flexible on death, which means you can nominate a recipient to receive your retirement income.
If you die before your 75th birthday and haven’t started drawing your pension, it can be passed to your beneficiaries tax-free. The beneficiaries will be able to choose how they draw the income (lump sum, drawdown or annuity).
If you die before your 75th birthday, and are already receiving your pension, it will impact how beneficiaries can access the pot. If you took a lump sum and you have remaining cash in your bank account outside of your pension, this will be counted as part of your estate. If you are using drawdown, your beneficiaries can access whatever’s left in your pension entirely tax-free.
If you die after your 75th birthday, your beneficiaries will pay income tax on any pensions you leave behind, at their marginal rate.
How is a private personal pension different from the State pension?
What is the difference between the State pension and a private pension?
The State pension is paid by the Government to all those with at least 10 years of National Insurance Contributions. A private pension is entirely separate from the State pension and consists of contributions you have made.
How much does the State pension pay?
To receive the maximum State pension amount – currently £179.60 per week (2021/22) or £9,339.20 per year, you need to have 35 ‘qualifying’ years.
Couples entitled to the full state pension receive a maximum of £359.20 per week or £18,678.40 per year as of 2021/22.
Why should l consider a private pension if I am entitled to a State pension?
Given the relatively low level of income from the State pension, those who also save into a private pension will most likely be far better off. In addition, you can draw from your private pension from age 55, but the State pension is only available from age 66 (rising to 67 from 2028). There is also a lot of flexibility available with private pensions, giving you the chance to grow your money (however, investments can fall as well as rise).
How to Choose the Best Private Personal Pension
Given the number of private pensions available, it is always worth considering working with an IFA or wealth manager to help find the best product.
Where to look
There are numerous provider guides and comparison sites available online. The goodmoneyguide has one here: https://goodmoneyguide.com/personal-pensions/
What to look for
Always look for regulated providers that are part of the Financial Services Compensation Scheme, which offers 100% protection should the pension company fail. In addition, if you’ve received bad advice in relation to your pension, you could be eligible to claim up to £85,000.
Watch out for providers – or advisers – that contact via cold calls (which are now illegal) or unsolicited marketing material. Always take the advice of a fully regulated independent financial adviser. Always check the list of regulated and approved list of providers on the Financial Conduct Authority’s website: https://www.fca.org.uk/firms/financial-services-register
The amount of fund options available are important; look for providers offering options that meet your risk appetite. If you are interested in a self-invested personal pension, which allows more freedom to invest in individual stocks, make sure the provider has the appropriate expertise and range suited to your preferred portfolio.
Make sure you ask about minimum contribution levels and that you understand fees and charges. Many firms will charge exit fees if you want to transfer to a new provide, which can often be expensive (see fees section).
Fees and Charges for Private Personal Pensions
Fees and charges vary considerably between providers. Moneyfarm charges 0.35% while Nutmeg’s fee is 0.75%, but the services and fund choices will also vary between providers.
It is important to remember that low fees do not necessarily mean best value. Paying lower fees for poor performance may prove a false economy, but excessive fees can decimate a pension fund. For example, assuming a pension pot value of £50,000 growing at 5% a year, reducing your charges from a high level of 1.2% to a very reasonable 0.4% could save you £23,000 over 20 years. Make sure you explore precisely what is included in the costs and what impact these have on the likely final pension pot.
Some providers charge for setting your pension up, but this is not a universal charge, so it makes sense to shop around.
Other charges include platform fees, which cover the administration of your pension. They’re usually charged as a percentage of the money you’ve saved.
There is also an ongoing charges figure (OCF), which covers the day-to-day costs of running an investment fund. It’s usually charged as a percentage of the value of your investments.
Annual Management Charge
The annual management charge (AMC) pays for running and administering your plan, and for investing contributions.
The AMC is charged as a set amount or as a percentage of the value of your pension investments.
Each investment tends to have a different annual management charge to reflect the type of investment fund. Some are more specialist or are more actively managed, and they often have higher charges.
An annual charge above 1% is generally considered expensive for a basic personal pension. For fully managed SIPPs with significant fund charges and financial advice included, fees can often exceed 1%.
Exit Penalties & Fees
It is likely that you will pay an exit fee if you want to transfer your pension to a new provider. These vary from company to company – and even between products within the same provider – and can be as much as 10%, which might negate any benefit of leaving.
You may also incur an early exit fee to cover the long-term management and handling charges over the life of the pension.
Exit fees and penalties are not always clear, so it is important that you read the small print before making any decisions.
How to Transfer a Private Personal Pension
If you feel that you are paying too much in fees to your current private pension provider, or they do not offer the flexibility and fund choices you need, it might be worth transferring. However, not all schemes accept transfers.
What should I think about before transferring?
It is almost always better to remain in your occupational or workplace pension because you enjoy contributions from your employer. However, if you are in a defined benefit pension and approaching retirement, you will not be able to take the same flexibilities as those offered to DC members. You must seek financial advice before switching out of DB, and remember that you will be giving up protection of an income for life. Even if your employer is vulnerable to insolvency, your DB pension is protected by the Pension Protection Fund; something not extended to DC funds.
If you are a member of several workplace DC pensions, it might make sense to consolidate these in one place, since your scheme is not transferred automatically when you change jobs.
It may also make sense to transfer your pension to a specialist provider if you are moving overseas. Not all schemes can take contributions from abroad, so you need to fund a qualifying recognised overseas pension scheme.
How to start transferring an employer pension into a private pension
You can usually transfer a defined benefit pension to a new pension scheme at any time up to one year before the date of when you’re expected to start taking your pension. Some schemes will let you transfer only a part of your benefits. You’ll need to check with your provider to see if they offer this option.
If you are considering leaving your DB scheme, before you can start the advice process, you need to get a transfer value from your scheme. The transfer value is set for three months, so line up an adviser ahead of time to avoid having to make rushed decisions. If you don’t complete the transfer process within the three-month period for which the transfer value is guaranteed, you might have to apply for another value, which will likely incur a cost.
When you’ve transferred to a new scheme, you’ll usually have given up all benefits under the old scheme, and when you start taking your pension, you can’t usually move your pension elsewhere.
Why do I need an IFA to help with a transfer?
If you take regulated financial advice, the IFA bears the risk of any poor decisions rather than you.
Defined benefit scheme members must seek regulated independent financial advice before taking a transfer out if their pot is worth more than £30,000. Thousands of DB members have received bad advice, resulting in them losing their valuable DB pensions. The FCA says good advisers will ask you about current financial circumstances and aims; priorities and spending plans in retirement; other pensions, assets and debts; and your health and your family’s health.
As with DB members, if your DC scheme has ‘safeguarded benefits’ such as a guaranteed annuity rate, and the value of these benefits is more than £30,000, you’ll have to get regulated financial advice before you can transfer.
If you have small pension pots worth less than £10,000, consider keeping them where they are. This is because if you’re considering taking a small pot lump sum at some point before you retire, by withdrawing the whole amount, this will not affect any future pension contributions.
Is it worth getting 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.
Can You Save into a Lifetime ISA & a Private Pension?
Individuals aged over 18 and under 40 can consider opening a LISA, which is a savings account designed solely to buy a first home or to provide a retirement income.
You can invest in a private pension and a Lifetime ISA (LISA) simultaneously.
LISAs are tax-advantaged, so you won’t pay tax, capital gains, or dividend tax on money you take out, but contributions are made after income tax, and they are subject to inheritance tax.
LISAs are also restricted to a maximum £4,000 a year contribution limit, which goes towards the £20,000 ISA contribution cap. You can only withdraw once you reach 60 or if the money is to purchase a first property. Unauthorised withdrawals are subject to a 20% charge.
What about Self-Invested Personal Pensions?
A SIPP is a type of personal defined contribution pension that allows the member to choose where to invest their contributions. Unlike in a traditional personal pension where investments are limited to those offered by a pension provider, a SIPP might offer access to a broad range of asst classes, including stocks, bonds, commodities, commercial property, private equity, and even fine wines or classic cars. The range of assets offered will vary between providers.
A SIPP provider administers the SIPP on the member’s behalf. They provide access to a range of funds, take the contributions, and ultimately pay out the pension. The provider charges for this service and fees vary between companies.
There are low-cost SIPPs and full SIPPS.
Low-cost SIPPs
The low-cost SIPP (also known as SIPP lite or DIY SIPP) typically charges lower fees than a full SIPP. This is because it is ‘execution-only’, which means that the provider offers a platform for you to choose and manage your investments, with generally fewer investment choices and often no investment advice.
Low-cost SIPPs offer fewer asset classes than their full cost counterpart and typically include listed equities, Exchange Traded Funds (ETFs) and bonds, but not unlisted equity or commercial property. Some may just offer a limited number of readymade funds. Providers do not offer advice, leaving the investor to make their choices on their own.
Full-SIPPs
Full SIPPs offer the widest range of investment choices, including unlisted stocks and commercial property. Depending on the provider, you may also have access to an investment adviser with a full SIPP. The advice – and the broader investment options – mean that full SIPP fees are generally higher than lite SIPPs.
When thinking about what to include in your SIPP, remember that you will need to maintain and manage your portfolio, so your financial circumstances and expectations are important. Think about your level of investment experience, financial knowledge and confidence. Consider whether the provider offers a smaller fixed range of investments or a wider, more flexible portfolio.
There are comparison sites available online, but it may be worth taking advice before choosing a provider.
Who Holds Your Money in a Private Pension?
When you invest in a private pension, an administrator is responsible for any payments into your pension. They will also reclaim basic rate tax relief and process any income withdrawals that you make.
SIPP providers such as Hargreaves Lansdown, AJ Bell and PensionBee administer pensions as part of the service. Other providers use third party administrators to manage this function on their behalf, for example Barclays SIPP uses AJ Bell.
Third-party administrators also usually take care of workplace pensions on behalf of employers.
All third-party administrators (and the administration of SIPP providers if done in-house) are regulated by the Financial Conduct Authority which expects firms to clearly establish roles and responsibilities and have procedures to ensure all employees are properly trained and competent.
If you have concerns or complaints about the way your pension is administered, you need to contact the Pensions Ombudsman.
Should the administrator fail completely your pension will be protected by the Financial Services Compensation Scheme.
What are considered private pensions?
Private pensions are usually one of three types:
Personal Pensions
Personal pensions – offered by major pension providers offering access to a range of asset classes, which are invested on the member’s behalf once they have chosen their funds.
Charges vary between providers, as do contribution levels.
Stakeholder Pensions
Stakeholder pensions – these have low and flexible minimum contributions, and charges are capped at 1.5% a year of the value of your pension pot in the first ten years, then 1% a year. Stakeholder pensions offer a default investment strategy, which take away the need to make investment decisions.
Self-invested personal pension (SIPP)
Self-invested personal pension (SIPP) – SIPPs operate like a standard personal pension but offer more flexibility with the investments. They are generally more expensive than their other private pension counterparts, and you need to understand how investments work, research where to put your money, and spend time managing your portfolio.
Do I have any private pensions?
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/
How much should I have in my pension by the time I retire?
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.
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- Last edited by
- Gill Wadsworth
- January 5, 2022
- 9:11 am
