When it comes to our pensions, we are all understandably careful; it is something that we want to be sure of once we retire, and we want to make sure that we are living in relative comfort – and perhaps enjoy the perks of the good life once in a while as well. But if you have worked hard all your life and would also like to make some sort of investment, there are various pension solutions for you, particularly in regard to private pensions. Are you looking to make a feasible investment with your hard-earned savings? Here’s an in-depth look at the kinds of private pensions you can benefit from in the UK.
The two major kinds of private pensions in the UK
Private pensions in the UK are commonly divided into two basic categories: defined contribution pensions and defined benefit pensions. The defined contribution pension is such that it is based on the amount you pay into it, whilst the defined benefit pension is a type of private pension which is usually from your workplace and based on the amount of salary you are getting; it is also based on the amount of time you have worked for that particular employer.
More on defined contribution pension
Defined contribution pension programmes or schemes are often either stakeholder or personal pensions. This kind of scheme is also referred to as a money purchase pension. In essence, a personal pension is a pension which you arrange on your own. The amount you pay for a personal pension will be placed in investments by the provider of the pension (usually in the form of shares). The amount of money you will receive from a personal pension will also depend on how much money you have paid in to it, how the investments have been carried out and if they have performed well or not, and how you ultimately decide to receive the money you have.
There are also two main kinds of personal pensions: stakeholder pensions and self-invested personal pensions, or SIPPs. The stakeholder pension is required to meet specific requirements from the government, such as limitations on charges, whilst SIPPs allow you to have control over particular investments which comprise your pension fund.
With some pension schemes, your money can be moved into investments with lower risk as you get older; to confirm this, it’s best to ask your provider. The good thing about a personal pension is that you can basically benefit from tailor made pensions where your provider can give you advice and recommendations on the best personal pension scheme according to your needs.
More on defined benefit pension
A defined benefit pension programme can be a workplace pension which is arranged by the company for which you work. This kind of scheme is also referred to as a career average or final salary pension programme.
With this, the amount of pension you get will depend on the rules of the actual scheme and not on the investments or how much you have contributed. Workplace pensions like these are often based on several factors such as your salary as well as how long you have been a worker for that particular company. The provider of the pension will give you a set amount every year once you retire, and you also have the option to avail of 25% of the pension tax-free, with the rest given to you as regular pension payments.
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