A financial product called a pension enables you to accumulate savings for your retirement. Technically speaking, it's a form of tax wrapper with limitations about how much money you can save and when you can use it.
The three main types of pensions are:
Nowadays, most employer pensions are defined contributions plans. Self-Invested Personal Pension (SIPPS) are also classed as defined contributions plans.
With this method of saving, the amount you receive upon retirement is based on contributions to your pension + investment returns - any fees paid.
Any amount you save is eligible for tax relief, therefore the government will increase your contributions. In the case of a workplace plan, your employer typically must contribute as well.
Your company will choose the supplier of workplace pensions; you will not have an option. You should be enrolled automatically if you make more than a specific amount with one firm each year. Those who aren't automatically enrolled because they don't make enough money or are under 21 can typically choose to enrol actively.
The term "final salary" is also occasionally used to describe these. Depending on your working income and duration of service, you can determine how much you'll receive after retirement. Without having to worry about investment returns, you receive a guaranteed income for life. However, these types of pensions are becoming much rarer.
The state pension is a qualifying benefit paid by the government. To get the full amount, you need to have 35 years’ worth of National Insurance contributions. You can also get NI credits in some cases if you are out of work – for instance if you’re looking after small children and have applied for child benefit.
The State Pension comes in two forms, and which one you receive depends on your retirement age:
New State Pension: Retire after 6th April 2016
Basic State Pension: Retire before 6th April 2016
If you do want to pick and choose your investments, you can opt for a Self Invested Personal Pension or a provider that gives you fund choice. Prior to making an investment, make sure you are mindful of the risks associated or contact me.
It's increases are protected by the state pension triple lock which ensures the purchasing power of the pension does not fall.
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