Personal pension plans (PPPs) and stakeholder pension schemes
(SHPs) are defined contribution
arrangements.
They are essentially investment policies that provide an income
in retirement. They are available any UK resident who is
under 75 years of age and can be bought from insurance companies,
high street banks, investment organisations and some retailers
(i.e. supermarkets and high street shops).
Policyholders contribute to their plan, the money is invested
and a fund is built up. The amount of pension payable when the
policyholder retires is dependent upon:
- the amount of money paid into the scheme;
- how well the investment funds perform; and
- the 'annuity rate' at the date of retirement. An annuity rate
is the factor used to convert the 'pot of money' into a
pension.
Currently, the policyholder can retire at any age between 50 and
75. From 6 April 2010, the minimum age will rise from 50 to 55.
When the policyholder does retire, they can generally take up to
25% of the value of their fund as a tax-free lump sum. The
remainder of the fund must be used to buy an annuity with an
insurance company.
