Personal Pension Plans (PPP's) are designed for the millions of self employed and employed individuals who do not have access to a company pension scheme.
Introduced in July 1988, they were part of a goverment push to extend pension choice and encourage people not in company schemes to build up a retirement fund, one that could cater for their retirement
needs more realistically than the state.
Many financial institutions offer PPP's, though most are run by the large insurance companies and banks.
How They Work
Unlike many company schemes, all personal pensions work on a 'money purchase' basis. This means that upon reaching your retirement date, you use the money that has built up in your personal pension to purchase an annuity. It's the annuity, which then provides you with income in your retirement. Therefore, it follows
that the value of the pension at retirement is dependent upon:
1: How much money you have paid in over the life of the plan
2: How well the money has grown
3: The annuity rate that the provider applies to your pension fund
The ongoing tax status of Personal Pensions as decided by the Goverment in other words makes a personal pension a long term savings plan (albeit a very tax efficient one) that's designed to produce a fund at retirement. This then
purchases an annuity, which in turn provides the retirement income. There are also additional benefits for dependants.
There is also a special type of personal pension used for 'contracting out' of S2P called an 'Appropriate Personal Pension' or APP.
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