Individual Pensions

Many different individual arrangements are available as retirement provision. The different types of individual pension arrangement can be divided into three broad categories:

  1. Personal Pensions
  2. Stakeholder Pensions
  3. Retirement Annuities

Personal pensions, stakeholder pensions and retirement annuities are the types of non-occupational pension schemes that are available to individuals.  Originally, Retirement Annuity Contracts (RACs) were available for self-employed individuals who could not join an occupational pension scheme or employees whose employer did not provide one although it has not been possible to take out a new RAC since 1 July 1988 when personal pensions were introduced.

The introduction of personal and stakeholder pensions made it easier for people to save for retirement outside the traditional occupational pensions route.

Stakeholder pensions were made available from 6 April 2001 as part of the Government’s intention to simplify and reduce the cost of pension planning for the consumer.

Whilst an individual can take out a personal pension or stakeholder pension, a group arrangement can be set up by an employer, much like an occupational pension scheme. It does, however, operate slightly differently from an occupational pension scheme and there is generally less involvement required from the employer although the employer may well pay contributions through its payroll to such an arrangement.  There could also be other occupational pension-type characteristics such as a group life assurance scheme involved.

A stakeholder pension scheme is a type of personal pension scheme which is subject to some additional requirements. 

Before April 2006 there were restrictions on paying into a personal pension scheme at the same time as being an active member of an occupational pension scheme. These were removed from 6 April 2006.

From a pension’s tax perspective, each of the above types of arrangement is now treated as a registered pension scheme and must comply with the requirements of the new pension tax regime from 6 April 2006, so the same requirements apply as to contribution limits and the types of benefit allowable. However, each arrangement still has its own scheme rules and/or contract terms to determine exactly what types of benefit it provides etc. within the overall general framework (personal pensions, stakeholder pensions and retirement annuities).

From a non-pension’s tax perspective, there are still clear differences between how these types of arrangement work under general pensions legislation (for which the Department for Work and Pensions (DWP) is responsible rather than HMRC). For example, RACs are exempt from some of the DWP requirements, such as the provision of information requirements. Stakeholder pension schemes are subject to special requirements which do not apply to other personal pension schemes and personal pension schemes are treated differently from occupational pension schemes.

Also, personal pension schemes (including stakeholder schemes) are contract-based, i.e. there is a contract between each individual member and the product provider while occupational pension schemes are trust-based and the scheme trustees have a duty to act in the best interests of the scheme membership although personal pension schemes and stakeholder pensions schemes can still be set up under trust.

The Financial Conduct Authority (FCA) is responsible for dealing with contract-based schemes, and makes rules which firms which provide these schemes must comply with the rules made by the FCA (under the authority given to them by financial services legislation). Trust-based schemes on the other hand are the responsibility of the Pensions Regulator (TPR), and scheme trustees and managers must comply with rules made by TPR under the authority given to it by DWP legislation. TPR also looks after all workplace pension schemes (including contract-based schemes) in terms of how they are administered.

A self-invested personal pension (SIPP) is a special type of personal pension, allowing more scope for how pension contributions are invested. This is covered in more detail in another section and in the resource material. In addition there are other types of arrangement that are in fact occupational pension scheme-type arrangements but they can be set for an individual or allow individual pension planning and can be considered to be an individual pension in that respect.

  • Small self-administered schemes (SSASs)
  • Executive pension plans (EPPs)
  • Buy-outs
  • Additional voluntary contributions (AVCs)
  • Free-standing additional voluntary contributions (FSAVCs)

1. References

This section  to Individual Pensions and can be found in the relevant pages of the Retirement Provision Certificate Study Manual 2023

2.Think about it


You are a member of an occupational scheme that has an AVC facility. Think about why you might choose to pay into an FSAVC or stakeholder arrangement rather than pay AVCs.

Write your comments down as part of your revision structure/practice.

3. Fact Finding

Individual Pension Arrangements

You will find some useful information about saving for retirement on the Money Advice Service website. Click on the link below to go there now.

4. Test

You can now check your knowledge by a short test.  Once completed then check your answers against those given.

Individual Pensions Test

Individual Pensions Test Answers.docx