Blog - Wealth Management Blog

Are personal pensions worth having?

Ever changing legislation has left people questioning whether personal pensions are worth having.

But ignoring personal pensions when considering long-term savings options will mean ignoring the vast advantages they offer.

These advantages include tax-efficient growth, tax relief, the potential to reduce national insurance contributions and shelter from inheritance tax.

Personal pensions grow virtually tax-free and authorised underlying investments are not subject to capital gains tax. The majority of income tax is also avoided, except for the basic rate credit on UK dividends.

Contributions made into a personal pension also qualify for income tax relief as long as they are within the maximum set by HMRC.

As regards national insurance, through salary sacrifice, if an employer agrees an individual can sacrifice part of their salary and receive an employer-contribution instead. Depending on your level of income, the saving can be as high as 12 per cent of the amount sacrificed.

Finally personal pensions are not considered part of your taxable estate when you die and will therefore not be subject to the potential 40 per cent inheritance tax suffered by other types of savings like ISAs.

Despite a long list of personal pension rewards careful attention must be paid to the contribution limits, to ensure you receive the tax reliefs, and the type of underlying investments you should choose to ensure the amount of risk taken is suitable.