How do I set up a private pension?

Man using calculator Accounting Calculating Cost Economic bills with money stack step growing growth

Ask the expert at Smith & Pinching about setting up a private pension fund - Credit: Getty Images/iStockphoto

My parents are trying to reduce the amount of Inheritance Tax on their estate so have given me £50,000 which they want me to put into a pension. I belong to my work pension scheme but it’s a public sector pension, so I think I need to open a private pension as well. How do I go about setting one up?

Richard Barker, chartered financial planner with Smith & Pinching

Richard Barker, chartered financial planner with Smith & Pinching - Credit: Smith & Pinching

Richard Barker of Smith & Pinching responds:

The first thing I suggest is that you do some proper planning. Retirement planning is vital as early as possible if you are to end up with the level of income to sustain your chosen lifestyle when you stop working. An independent financial adviser from a firm of Chartered Financial Planners will help you understand your future entitlements under your workplace scheme as well as what a private pension can provide.

A private pension is easy to open. Essentially, it is an investment portfolio: it’s important that it contains the right investment funds for you with the potential to achieve your retirement goals. Most pension schemes will offer a range of investment funds at differing risk levels, so your portfolio can be tailored for you. Do make sure you understand the charges that are associated with the provider and the investment funds.

As far as the gift from your parents is concerned, you may need to take into account your annual allowance for pension contributions before opening a private pension. This is the maximum you can contribute and get tax relief in each tax year. The annual allowance for all your pension contributions, including the value of your additional benefits accrued in your workplace scheme, is normally £40,000 or 100% of your eligible earnings, whichever is lower. However, it is possible to carry unused annual allowance forward for up to three years, provided you use the current year’s allowance first, so you may have sufficient allowance available this year to use the gift from your parents as a contribution.

The annual allowance is adjusted downwards if you have started taking flexible benefits from your pension fund or if you are a particularly high earner.

The other allowance you must bear in mind is the lifetime allowance for pensions. This limits the total amount you can hold in pension savings. If you exceed it, you will incur tax charges. The current allowance stands at £1,073,100, which may sound unattainable but is within many people’s reach with regular contributions and investment growth.

My view is that you should take this opportunity to get independent advice and to plan ahead for retirement, whatever your age.

Most Read

Any opinions expressed in this article do not constitute advice. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

For more information, please visit