Main types of pensions in UK

Nowadays, people based in the UK have a wide choice of pension plans available. A pension, which can also be called retirement plan, is a savings account meant to provide a guaranteed income for the rest of a person’s life when they stop working. By opening a pension account, you are essentially creating a long-term savings plan and starting to invest money for your own future: during your working years you will put money on your retirement fund every month. According to the pension plan you decide to take part of, your employers and the government will contribute to your pension fund as well. In the UK, you’ll be able to access your retirement savings when you reach the age of 55. As previously mentioned, British people have a wealth of options when it comes to pension plans availability. Let’s have a look on the main retirement schemes in the UK.

What is a workplace pension and how it works

Workplace pensions are a particular type of retirement schemes to which the employer contribute. This scheme can also be called occupational pension or company pension. Currently, all employers in the UK are compelled to provide their employees a pension scheme. By choosing this specific plan, both you and your employers will contribute a minimum amount to your pension fund. The government will contribute too by applying tax relief. Of course, like any other retirement plan, the workplace requires that the account holder meets some eligibility criteria. Once you have verified that you comply with the requirements set by the government, you’ll just have to pay a monthly percentage of your salary: the amount you pay will be added to your pension fund. Nowadays there are two main types of workplace pension plan. By choosing a defined contribution pension scheme, you will have to pay a small percentage of the money you earn each month to which your employer will also contribute. The amount you and your employer pay every month will be later invested by the pension provider. Your pension fund will change depending on the performance of the investments and on how much you put on your account every month. The other type of workplace pension plan available in the UK is called defined benefit pension scheme, which can also be called final salary pension scheme. By choosing this kind of plan, you’ll get access to a pre-established amount once you reach your retirement age, which is currently set at 55 years old. The amount you’ll get with a defined benefit pension scheme will change depending on how many years you have worked and on how much you paid every month. The best way to choose the right workplace pension for your necessities is to speak directly with your employer.

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What is a personal pension and how it works

A personal pension, which can also be called private pension, is a type of retirement plan thanks to which you can have much more control over the money you put away. With Moneyfarm private pension plan you can decide how much money put in, if contributing on a monthly basis or paying in a lump sum. That’s because a private pension is a scheme you can set up yourself. This might be the perfect choice for independent workers or even for people who already has a workplace pension scheme set. By choosing the simple personal pension you will have to make regular contribution, which will be handled by a pension provider. The money you put on private pension is used to purchase different assets that could be stocks, bonds, shares in order to create a diversified portfolio according to your preferences and how much risk you want to take. When you reach pension age you can withdraw up to 25% of the pension pot tax-free, or you can choose to withdraw the entire pot or also to withdraw as and when you want and need to.

What is a state pension and how it works

Lastly, the state pension is a particular type of retirement scheme which allows you to access the money you saved once you reach your retirement age. The government will pay your pension but you have to meet some requirements. For instance, you’ll need to demonstrate you have worked for at least ten years and you must have paid National Insurance contribution. The amount you have access to, as a consequence, will depend on the contributions you made over the years.

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