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MSE’s Academy of Money
MSE’s Academy of Money

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5 Personal pensions: money purchase schemes

Personal pension schemes, as the name suggests, are those set up by people on their own. Those who are self-employed, for example, have to set up their own pension plan as they do not have an employer’s occupational scheme to join.

Personal (or private) pension schemes are almost invariably defined contribution (or money purchase schemes) like those explained in the earlier video. As they are the most common form of private pension, this section provides more details about money purchase schemes.

The figure is a photo of a bird’s nest containing several one-pound coins.
Figure 6 Are you saving enough for your pension nest egg?

A money purchase scheme is fairly simple in one sense. It’s just a pot of cash you build up over the years, made up of contributions into the pension and hopefully some investment growth on top. However, any charges levied by the pension provider will be taken out of your pot.

You will need to arrange a personal pension yourself. As there are no contributions or help setting one up from an employer, the onus is fully on the individual to set up a pension and build up the funds. The tricky bit is where to find a suitable pension with low charges that gives you the flexibility and features you desire.

Unless you are particularly savvy it may be worth getting financial advice. You may find an adviser through word of mouth or online, but beware only taking guidance from a bank as staff might simply try to sell you that bank’s products.

Two sources are particularly useful when it comes to locating advisers and obtaining financial advice.

The Money and Pensions Service [Tip: hold Ctrl and click a link to open it in a new tab. (Hide tip)] provides guidance on the use of financial advisers.

Additionally, provides a list of authorised financial advisers.