Personal Pension Scheme

A Personal pension scheme is a UK tax-privileged individual savings plan, designed to build a capital sum exclusively to provide retirement benefits.

Personal Pension Scheme

A Personal pension scheme is a UK tax-privileged individual savings plan, designed to build a capital sum exclusively to provide retirement benefits.

The capital sum must be vested (used to provide benefits) between age 50 and 75. On vesting a tax-free lump sum of up to 25% of the fund can be taken buy the remainder must be used to provide a income either through a drawdown arrangement or through the purchase of an annuity. Under current rules an annuity must be purchased at age 75 even if a drawdown arrangement is in place.

Contributions can be made either from the individual or from an employer. Under current rules the contributions are limited to percentage of gross income that increases with age.

These plans were first introduced in 1987 to replace retirement annuity plans.

Tax Treatment for Personal Pension Schemes

Personal contributions receive basic rate tax releif claimed by the provider. That is a 78 contribution will be grossed up to 100 on payment to the provider. Higher rate taxpayers can claim additional relief through their tax return.

An employer's contribution is paid gross and is an allowable expense against income or corporation tax.

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