Planning for your future with a private pension

Setting Up a Private Pension

Life expectancy is at an all-time high, thanks to modern medicine and improved standards of living. While this gives us more time to enjoy our lives and spend time with our loved ones, it does mean pension savings are more important than ever.

Whether you have an existing employee pension, a private pension or no pension savings at all, Rhodes Wealth Management’s can help you put the necessary retirement planning in place. We can help you understand the different types of private pension plans, consolidate multiple pensions and carry out a state pension forecast so you can understand what retirement income you are entitled to.

We will take into consideration the annual allowance, any unused reliefs and the Lifetime Allowance. These areas are often complex, and our financial planners can provide the reassurance and experience you need to help you make the right decisions for your retirement.

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Understanding and developing a private pension strategy

Setting Up a Private Pension

Setting up a private pension is a key part of planning for your future, and the sooner you begin your private pension contributions, the more likely you are to be financially secure once you retire.

If you are unsure about setting up a private pension, or are looking for financial advice about your private pension, discuss with Rhodes Wealth Management today for professional advice you can trust.

How do Private Pensions Work?

Private pensions are an additional pension over your state pension and workplace pension. The difference is that a private pension is set up by you with regularly scheduled contributions, usually monthly. You can also make one-off lump sum payments into your private pension pot, and your pension provider will contribute tax relief.

The aim of a private pension is to grow a large sum of money in preparation for your retirement. So when you finally feel it is time to finish your working life, you will have acquired a substantial amount of money to keep you financially stable until you die.

There are a variety of different private pension providers out there, each with its own pension investment strategies. Some will be more suited to you than others depending on your circumstances.

Once you have chosen your pension provider, you will arrange to make regular contributions. Some people choose to do this monthly, but some providers will allow you to pay in lump sums also. 

There are many different methods to grow your pension pot, and the size of your overall pension will depend on the following:

  • How long you have been saving for
  • How much you have paid into your pension pot over the years
  • How well your investments have performed
  • What charges have been taken out of your pot by your pension provider


Charges are deducted from your pot to cover the cost of investment and management:

  • An annual management fee (usually a % of pot’s value)
  • Switching charges (if you want to change your funds)

Investment types

Most pension providers will provide a range of ways for you to grow your pension pot, most typically in the form of investments. Certain pension providers will offer different investment types for you to choose from, depending on your preferences and circumstances

Most personal plans offer a range of investment strategies:

  • Some private pension schemes will specialise in specific ‘assets’ such as shares, bonds or property to invest your pension into.
  • Another option provided by private pension plans involve investing in a particular geographical area or location – e.g. a fund that invests in UK companies, or a fund that invests specifically in Europe
  • Other options may involve investing in a mix of different assets – e.g. a fund investing in both global shares and government bonds.

On top of these investment strategies, you may also want to choose the level of risk associated with your investment:

Cautious: A cautious investment will see your money grow at a slower rate, but there is much less risk of losing your investment to high-risk trades.

Balanced: A balanced risk investment is a little riskier than a cautious strategy, but you may see more growth in your investment.

Aggressive: An aggressive strategy is the riskiest of the three options, but can see your investment grow exponentially if successful.

Private Pension Tax Relief

When you save into your pension, you are entitled to tax relief on your savings. The government will contribute a certain percentage to your pension pot as a reward for saving for your future. The amount of tax relief you are entitled to depends on the income tax rate you pay:

Basic-rate taxpayers: 20% pension tax relief

Higher-rate taxpayers: 40% pension tax relief

Additional-rate taxpayers: 45% pension tax relief

Tax relief allows you a little extra leeway when it comes to saving. Where a basic-rate taxpayer would contribute £100 into their pension, it would only actually cost them £80. The government would add the remaining £20 on top, which equates to 20% of your contribution.

Types of private pension

There are several types of private pensions that are available for consideration. Figuring out which one is best suited for you will depend on a variety of factors:

  • Financial situation
  • Financial goals
  • Current assets
  • Spare expenditure
  • Future goals

Standard personal pensions:

A standard private pension is a plan that you set up as an individual with a pension provider. Whether you are employed or not, you can set up a personal pension plan, and other people are entitled to contribute to it also. You will be charged an annual fee, which is usually a percentage of your total pension pot.

If you also have a workplace pension, you can instead request your employer to contribute to your personal pension rather than your workplace pensions. This can be useful if you regularly move jobs and prefer to keep all your pension savings in one single pot, but does require permission from your employer. 

Generally, the money you contribute to a personal pension is invested in a variety of assets and funds. This should generate reasonable growth over time, adding to your private pension pot which can be accessed from the age of 55.

Stakeholder Pensions:

Stakeholder pensions are an easy to manage pension strategy that allow you more flexibility without the added responsibility. Most stakeholder pensions will have:

  • Low minimum contributions
  • Flexible contribution methods
  • Capped fees for management
  • Default investment strategies

Minimum contributions: A stakeholder pension will tend to have low and flexible minimum contributions that allow you to build up a pension pot over a long period of time. These contributions are usually capped at around £20, making them easy to manage for a variety of personal financial situations.

Capped fees: There is a legal limit on charges for a stakeholder pension. This is 1.5% a year of the value of your pension pot. This applies for the first ten years of your pension pot being active, and then 1% every year following.

Default investment strategies: Where other pension funds allow you to choose your investment type, a stakeholder pension will generally offer you a default investment strategy for your pension pot.

Self-Invested Personal Pensions (SIPPS):

A Self-Invested Personal Pension is the most flexible type of personal pension available, allowing you to control how you invest your savings. They are one of the most tax-efficient pension schemes, and give you control over your investments, with a wider range of investment opportunities:

Tax-free investments: a SIPP allows you to grow your money free of UK income and capital gains tax.

Pension tax relief: for up to £40,000 a year, a person with a SIPP will be entitled to up to 45% of tax relief on personal contributions.

Inheritance tax-free: in some cases, you can pass on your wealth and estate entirely tax-free via a self-invested personal pension scheme. If not entirely tax-free, then you will also be able to pass on your estate more tax-efficient than other pensions and other schemes.

Remember, regardless of the type of pension scheme you opt for, pension and tax rules and benefits can differ depending on your circumstances.

Taking money out of your private pension

From the age of 55 (57 from 2028), you will have the choice of accessing your pension pot – but no sooner. Depending on your age or circumstances, you may be able to access your private pension sooner.

Once you are entitled to your private pension, there are several different ways to access and utilise your lifetime savings: 

  • You may want to keep your pension savings where they are, use them at a later date, or continue saving if you plan on retiring after your earliest retirement age.
  • Use your pension pot to buy an annuity – a guaranteed income for life, or for a fixed term. Though this income is taxable, you can choose to take up to 25% of your savings as a one-off tax-free lump sum once you gain access to it.
  • You may also want to use your pension pot to provide a flexible retirement income, also known as pension drawdown. This consists of taking the tax-free 25% of your pension, then using the rest to invest in a steady stream of regular income to see you through your retirement.
  • You could even take the entire pot in one go. This will still entitle you to the 25% tax-free sum, but the rest of the 75% will be taxed accordingly.

There are many ways to utilise your private pension savings once you reach retirement, and no one way is the right way. Depending on your circumstances, you may even wish you adopt a variety of strategies to best suit your needs. 

How we Help with Setting Up a Private Pension

Here at Rhodes Wealth Management, our financial advisors work with you to understand what private pension strategies will suit you best. We discuss the options available to you and how best to utilise them for your later life planning.

By assessing your current and future financial goals and needs, we help you to understand what pensions strategies are best for your circumstances so that when you reach your retirement age, you will be financially secure and stable: 

  • Assess your current and future financial needs/goals: we understand that financial situations are bound to change. We develop personal strategies that allow you to adapt and overcome any financial changes you may encounter.
  • Explore every available option to you: everybody’s needs are different, and we understand that not every strategy works for everyone. We’ll discuss what options are most appropriate for your circumstances and provide you with a strategy that is right for you.
  • Investigate tax-reducing solutions: In most situations, you will be liable to pay tax on your pension pot. That’s why we develop strategies with you that see you making the most of your investments, avoiding tax where possible.

Contact Rhodes Wealth Management for Private Pension Support

We believe that nobody should have to worry about their finances in their later years. If you are looking to set up a private pension, or need advice on the right steps to take for your later life planning, contact us today to discuss the most appropriate options for you.

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