For most people, a strong pension is a necessity in order to enjoy an adequate lifestyle in their later years. For the distinct majority, the state pension of less than £100 per week simply will not be enough to enjoy a stress free retirement. Therefore, the earlier you can save for a pension the better. This is because it gives your capital a greater chance of increasing, ready to utilise during retirement. Within the United Kingdom, there are a number of pension options of which are discussed below:
The state pension
This pension is part of the British government’s scheme, which is reliant on National Insurance contributions. Currently, women can get paid the basic level of state pension from the age of 60, however for men the age is higher at 65. In order to receive the full state pension, the level required level of National Insurance contribution must be met. From the year 2020, the basic age for state pension entitlement is set to rise to 65 for both women and men.
The occupational pension
These are pensions which are managed by your employer. If you are a self employed, then this option excludes you. Likewise, this option excludes you if your workplace simply does not have a pension scheme.
The personal pensions
If you are not eligible for an occupational pension scheme, then it is possible to qualify for a personal pension. This is where you use a pensions provider to save for retirement. In order to build up your retirement ‘pot’, a pension provider will use your money to reap long term investment rewards (hopefully!). Upon retirement, this pension fund should allow you to have an ‘assured income’ for the rest of your life, or rather ‘annuity’. As you reach retirement, it is also possible to withdraw a tax free lump sum of 25% of the total pension fund.
The stakeholder pension
A Stakeholder pension is similar to that of a personal pension. However, they have primarily been designed for those individuals that experience lower incomes of up to approximately £20,000 per year.
The Self Invested Personal Pension or SIPP
Following on from the concept of a personal pension plan is the Self Invested Personal Pension (SIPP). A SIPP is aimed at those who wish to exert far greater control as to where their ‘pension pot’ is invested. More details about a SIPP can be found here.
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