What Is An Individual Pension Plan?

Whilst many people take advantage of company pension schemes, where employee and employer pay into a pension fund, more people are starting to invest in an individual pension plan to boost their retirement income.

You can set up one of several types of individual pension plan, which can be offered through your company, or by consulting an independent pensions adviser.

Free Standing Additional Voluntary Contributions Pension (AVC)

An AVC is an individual pension plan that allows additional savings for retirement. It is normally used by people who are already members of an occupational scheme, but want to pay into a separate scheme as well. AVC schemes can be offered by the employer - known as in-house schemes - or the employee can simply set up a new scheme independently of the company. Both have pros and cons, which is why it is useful to seek professional advice if you are planning to set up an AVC scheme.

Personal Pensions

A personal pension plan allows you to keep paying into the fund no matter where you are working. This type of individual pension plan is particularly useful for self-employed workers, or for people who move jobs regularly. You may be able to negotiate a contribution from your current employer, or you may just have your own contributions going into the fund. In some cases, you may be able to pay a lump sum into the fund, and you will be able to increase or decrease your contributions in line with your salary.

Stakeholder Personal Pension Plans

The concept of stakeholder pensions was introduced by the government in order to encourage people to save for retirement. Companies with more than 5 employees are obliged to offer a stakeholder scheme, but they are not obliged to contribute to it. They can offer individual pension plans to employees, which the employee can then take with them if they leave the company.

Individual pension plans can offer flexibility in terms of contributions, investment vehicles and benefits. In some cases, you can choose how you would like your fund to grow - by a fixed amount each year, for example, or linked to the retail price index or the FTSE100. To find out if an individual pension plan would be suitable for you, talk to an independent pensions adviser. Depending on how close you are to retirement, and how much you have available to save, they will be able to advise you on the best way to move forward with your pension and secure a comfortable retirement.