Pension planning for the self-employed

Other pension products

An insured personal pension is one where a fund manager makes investment decisions on your behalf. The investments should be unique to your particular fund and specific to your needs. A life insurance company manages the assets, and the fund managers must be authorised by the Financial Services Authority (FSA). This type of pension includes private managed funds.

Self-invested personal pensions (SIPPs) enable you to select pension fund investments yourself. You can invest in a wide range of assets, including stocks and shares, securities and commercial property.

The investments may be of a single type or a mix. Types of investment commonly chosen for SIPPs include:

• unit trusts - where you buy units in the mix of investments an investment company holds
• equities - where you buy shares in quoted companies usually through a stockbroker
• government securities - eg up to the tax free limit on a national savings account
  cash, usually in the form of long-term, high-interest accounts

Life annuity and capital protection
One way of investing the tax-free lump sum received on retirement through a pension scheme, is to buy what is known as a purchased life annuity. The regular annuity payments received are split into "capital" (representing repayment of the purchase price, which is tax free) and "income" elements. The income element is taxed, depending on the recipient's total level of income, at starting (10 per cent), lower (20 per cent) or higher (40 per cent) rate, unless covered by allowances.

You can also take out a kind of insurance against your early death called capital protection, which is another type of annuity product. It ensures that if you suffer an early death, the difference between the gross income that is received and the original capital to buy the annuity is paid as a lump sum into your estate.

Subjects covered in this guide

• Introduction
• Assessing your pension needs
• How a personal pension works
• The basic State Pension
• Stakeholder pension
• The difference between a stakeholder pension plan and a personal pension plan
• Other pension products
• Other tax-efficient savings
• Transferring your pension
• Keeping track of your pension

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