What types of Pensions are available?
For those who work outside the world of finance, Pensions often have a reputation to be a confusing and even intimidating subject. There are a variety of different types of pensions which are used for different reasons, however they all are ultimately used to fund your retirement.
In the basic sense, a pension is a retirement plan in which money is invested towards supporting yourself in later life. Typically, you’ll invest part of your income each month and over a career this can grow into a comfortable nest egg for you to live on retirement. No matter the type of pension, you can only withdraw from it once you reach the age of 55 (rising to 57 from 2028).
The State Pension and New State Pension
The state pension is provided by the government if you have made enough national insurance contributions over a long enough period. This can get confusing as there is a basic state pension and the new state pension.
As stated on gov.uk, you can claim the basic State Pension if you’re a man born before 6 April 1951 or a woman born before 6 April 1953. If you were born later, you’ll need to claim the new State Pension instead.
However, you should think of this as a top up to your other income, as on its own the state pension more often than not does not provide enough for your retirement. True Potential’s Savings Gap research highlights that most people think they will need £23,000 a year in retirement to live comfortably. The full new State Pension is £179.60 per week, which is just over £9,300 each year but the actual amount you will receive depends on your national insurance record and could be lower. You can check how much State Pension you are due by reviewing your State Pension forecast here.
A Workplace Pension is a way of saving for your retirement that is arranged by your employer and for most people it’s a legal requirement that you should be auto-enrolled into this type of pension.
Your employer will pay a contribution alongside your contribution, and you’ll also benefit from tax relief. This can be an effective way to build a comfortable nest egg, you can pick where to invest your workplace pension as all offer a range of funds, in addition to the default fund.
A Personal Pension is similar to the Workplace Pension, but you set this up yourself. The money you contribute benefits from tax relief and is put into your chosen investments that aim to grow your money.
The main benefit compared to the Workplace Pension is you can pick where to invest your money to maximise growth. For example, in our True Potential Pension you can invest in a range of globally-diversified Portfolios.
Final Salary Pensions
In some jobs you may also have a defined benefit pension scheme, which are sometimes referred to a Final Salary Pensions. This pays you a retirement income based on your salary and how long you’ve worked for your employer. These Pensions tend to be from public sector or older Workplace Pension schemes and are now less common. If you have one of these pensions, speaking to a specialist financial adviser is important if you’re thinking about accessing or transferring your pot.
Choosing the right types of Pensions for you
As we’ve seen, there are many types of Pensions available and you need to assess what is best for your circumstances. Start with your goal, think about your lifestyle and how much money you’ll need in retirement. Then think about how long you’ve got in terms of time towards retirement. With this in mind you can make an informed decision about what investment strategy is the right course for your goals.
To find out what pension options are available to you, or to learn more about our True Potential Pension, contact us today.
True Potential Wealth Management offers restricted financial advice. Our service is specifically designed for clients wishing to access their financial affairs online. With investing your capital is at risk. Investments can fluctuate in value and you could get back less than you invest. Tax rules can change at any time. Please be aware that this communication should not be considered as financial advice.
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