Different Types of Pension Schemes
Still, undecided which type of pension scheme will work best for your personal preference and requirements? Pension schemes aim to give you a retirement income, although they are basically meant to work in varying ways. Know which one would complement well with you!
A pension is something that anyone wouldn’t want to overlook due to its valuable benefits. It can be able to provide you with a comfortable life once you decide to retire and live your life to the fullest. Unless, of course, if you can assure a windfall or huge inheritance. A well-prepared pension plan will go a long way towards giving you a reasonable amount of income that you need for day-to-day expenses.
So, what are the different types of pension schemes available ?
There are three types of pension we have here: the personal pension, the workplace pension, and the state pension.
This is another type of DC scheme or money purchase. It is either you or your financial adviser who has the freedom to choose which among the numerous pension providers you would like to manage your pension and where you want to invest your contribution.
Among the types of personal pension are:
Stockholder Pension –
a straightforward form of defined contribution personal pension. It has low minimum contributions.
Self-Invested Personal Pension (SIPP) –
offers you more flexibility with your preferred type of investment. Here, you can begin drawing your retirement income once you reach the age of 55.
As you might expect, the company or workplace pension is set up by employers. Here, you intend to pay in, and so does your boss. The amount with which your employer pays in differ. You will likely be provided with one of the following:
Defined Contribution Schemes –
also called a money purchase scheme. Your employer will be the one to decide which type of scheme you’re given . Your pension pot is placed into numerous types of investment (e.g., shares). Once you retire, the amount you get to receive typically depends on how long you have contributed, how well the investments have performed, and how much has been contributed.
Defined Benefit Schemes –
provides you with a certain amount every year once you decide to retire. The accrual rate, pensionable service, and pensionable earnings are the major determinants of the amount you can get.
The State Pension is based upon National Insurance contributions and is only given by the government. Although, you won’t automatically get it. There are certain requirements you need to meet for you to become qualified.
You only get it immediately after reaching the State Pension age. Currently, this is 65 both for men and women. You will require to have 35 years of National Insurance contributions to receive £168.60 every week.
However, rules around the State Pension are possible to keep on changing, so make sure to keep yourself updated if you’re interested in acquiring one as your retirement plan.