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Pros and cons of personal pension plans

Ian Hopkins summarises the main advantages and disadvantages of personal pension plans as follows: In favour of a PPP * Greater flexibility in the level of contribution, in the choice of retirement age and the type of pension and size of lump sum at retirement; * Greater control of pension growth. The Teachers' Superannuation Scheme gives no individual control. A PPP gives a choice of fund, from safe to adventurous, and allows personal objectives to be set which, within limits, are not restricted by salary level.

* A higher lump-sum benefit is available on death in service, especially as retirement draws near, and the lump sum does not have to go only to the teacher's spouse or nominated dependants - for a single teacher, friends or charities can benefit on death.

* Retirement benefits under a PPP are likely to be higher than under the TSS, providing: a) the current government economic policy objectives are maintained - low inflation, controlled growth and modest public-sector pay rises; b) contribution levels are maintained and increased with earnings; c) enough time is allowed before retirement.

* A PPP can be maintained even when changing jobs. Not all independent schools are in the TSS.

Against a PPP * The TSS includes guarantees linked to salary level and is not dependent on economic conditions. If teachers receive large salary increases, the teachers' scheme can translate these into higher benefits quicker than a PPP; * A PPP requires decisions to be made both on inception and at intervals to retirement, whereas the teachers' scheme is "inertia-driven"; * Although a PPP allows retirement at any age from 50 it is less likely, without additional insurance, to give comparable benefits on early retirement through incapacity to those that would be possible under the TSS; * Death in service benefit in a PPP is low in the early years unless part of the contributions buys extra cover; * Benefits under a PPP are dependent on investment returns maintaining their long-term strong performance; on annuity rates being favourable at the time of retirement; and on a wise choice of pension companylife office to provide the plan and of funds to invest in.

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