What Is the Workplace Pension and How Does It Work?
Nowadays there are many types of pensions available in the UK, among these the workplace pension is one of the most common. It can be called occupational pension or company pension, too and it consists of a savings scheme in which your employer will also contribute. As a matter of fact, all British employers are currently required to contribute to their employees’ future by depositing a minimum amount every month, which will help you build your pension fund. The government will also contribute to your future through tax relief. Essentially, by choosing to open this particular kind of plan, your employer will help you build your retirement pot by paying you a little more. Of course, this way you’ll have to raise your contributions too. By opening a workplace pension, you won’t be able to access your money right away. In fact, the retirement age in the UK is currently set at 55, once you reach that age you will eligible to access and withdraw your money. There are two different kinds of workplace pension British citizens can choose: defined contribution pension scheme and defined benefit pension scheme. By choosing the first one you’ll have to deposit a percentage of your salary and your employers will have to contribute as well. The money deposited will be later invested by the pension provider. Keep in mind that, just like any other kind of investments, your money could grow but could also go down. The latter, the defined benefit pension scheme will grant you a pre-defined amount once you reach the retirement age. But how to know how much you’ll get? The amount will depend on how many years you’ve worked.
What are the other types of pensions available in the UK?
UK residents have a great choice regarding the kind of schemes available for their retirement years. They can choose to open a private pension, which is best suited for independent workers and which will give them the freedom to choose how often and how much to deposit. The state pension on the other hand is a specific scheme which will grant you access to a pre-established amount once you reach your retirement age, which in this case will be a little different. In fact, the retirement age for the state pension is set at 66 years old. The amount you get will be based on how much you put on your fund every month and on your contributions as well.
How do all pension schemes work in the UK?
As we have seen, UK residents have a wide choice regarding the many types of long-term schemes designed to provide and income for when they stop working. Even though every pension fund is different from the others, there are some common rules that apply to each of them. For instance, whichever type of plan you choose, you won’t be able to access your money before a certain time. The retirement age in the UK is set at 55 years old for the workplace pension and the private pension. On the contrary, people who chose to open the state pension will be given access to their money when they turn 66. Also, the government will always contribute to your future through tax relief. Lastly, it is crucial to remember that the money you put in your pension fund will always be invested. That’s why you should always keep in mind that all investments are risky are subject to the market’s fluctuations. This means your money will have the chance to grow but might also go down as well.