THERE are different pension options to consider with retirement planning and pensions can be complex but our team will guide you to one which best suits you.
There are different pension options to choose from. They are;
• Occupational Pension
• Personal Pension (stakeholder pension or SIPP – Self Invested Personal Pension
• Income Drawdown
• Annuity
Let’s firstly summarise ‘Occupational Pensions’. An Occupational Pension scheme is considered by many as being the best. Put simply, an ‘Occupational Pension’ is a pension scheme provided by your employer and is paid on top of your state pension. The contributions you pay to an occupational pension scheme are separate from, and on top of, the national insurance contributions you pay for the state pension.
How does an Occupational Pension work? It is a way of saving for your retirement by making contributions deducted directly from your wages. Your employer may also make contributions to your pension through the scheme. If you are eligible for automatic enrolment, your employer has to make contributions into the scheme.
Our independent financial advisers can go into this in more detail with you.
You also have the option of a ‘Personal Pension’ which is basically a pension which you can arrange for yourself. You may also have heard them referred to as ‘defined contribution’ or ‘money purchase’ pensions. Some employers do offer personal pensions as workplace pensions.
Pension Options
What this means it that money which you will pay into a personal pension is put into investments (such as shares) by the provider. Your appointed adviser will take you through this but it basically means that the money you get from a personal pension will depend on a few things:
- How much money has been paid in?
- How the fund investments have performed – have they gone up or gone down?
- How you decide you are going to take your money
- The types of personal pensions you opt for ie: a standard personal pension, a Stakeholder Pension or Self Invested Personal Pensions
We’ll look quickly at the three types of personal pensions.
- Standard Personal Pensions – these are offered by most large pension providers
- Stakeholder Pensions – these must meet specific government requirements – for example limits on charges
- Self-Invested Personal Pensions (SIPPs) – these allow you to control the specific investments that make up your pension fund
There are minimum standards set by the Government and so ‘Stakeholder Pensions’ must meet these minimum standards.
These include:
- a legal limit on charges – 1.5 per cent a year of the value of your pension pot in the first 10 years, then one per cent a year. (But if an employer is using a stakeholder pension to meet their automatic enrolment duties these are subject to a charge cap of 0.75 per cent)
- charge-free transfers
- having the ability to stop or re-start contributions at any time and without penalty
- low minimum contributions of no more than £20
- a default investment fund – your money will be invested into this if you don’t want to choose.
Let’s now look briefly at Self-Invested Personal Pensions (SIPP). SIPP allows you to invest into a wide range of assets. Again, our adviser will explain to you in detail.
What is a SIPP? It is essentially a pension ‘wrapper’ which allows you to save, invest and build up a pot of money for when your retirement starts. It is a type of personal pension and works similarly to a standard personal pension. The main difference is that with a SIPP, you have more flexibility with the investments you can choose.
The next type of pension we will look at is an ‘Income drawdown’ pension. An Income Drawdown is when you move into retirement and the personal pension goes from accumulation to drawdown.
An ‘Annuity’ is a product which pays you an income for the rest of your life. You will either use your pension pot to buy an annuity or you can purchase one with separate funds.
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