What different types of Pensions are there?
In its simplest form it’s a pot you and your employer can put money into, with beneficial tax benefits (tax wrapper), which you save for your retirement. Simples!
At retirement you get to enjoy the rewards of your financial astuteness!
Oh and of course by putting money into a pension pot, especially at a young age, you will benefit from one of the most fundamental rules there is in finance, compounding. The sooner you start, the bigger your pot should be OR the less you’ll have to put in it. Now if that hasn’t inspired you to speak to a financial adviser, I don’t know what will.
What is compounding – a simple explanation would be its where the money you invest earns interest or investment returns and then those returns are reinvested and earn additional earnings themselves. And so it continues. Beautiful really!
So for those of you who live in this beautiful county of Cornwall, why not speak to a Truro adviser and see how they could help you financially.
Personal Pension Plans (PPPs)
A Personal Pension Plan is a pension you usually arrange yourself (not your employer). They can have a wide investment choice but the charges will vary.
Stakeholder Pension Plans (SPPs)
Stakeholder Pension Plans were the precursor pension to Auto Enrolment. They have low charges, low contributions, a cap on charges and usually a default investment choice.
Group Personal Pension Plans (GPPPs)
A Group Personal Pension plan is selected by an employer for their employees to contribute to. Usually the employer will also contribute. These usually offer a good range of investments.
Self-Invested Personal Pensions (SIPPs)
These are a type of Personal Pension that gives you more freedom with the types of places you can invest.
From 2018 all employers will have to offer their employees a workplace pension and will have to contribute to their employees’ pensions. Larger firms will already have these in place. You will have the choice to ‘opt out’ if you don’t want to join, but if you don’t ‘opt out’ you will automatically be ‘opted in’ for it.
Final Salary Pension Scheme
A Final Salary Pension Scheme, also known as a Defined Benefit Scheme, is an occupational pension scheme. The level of retirement income is based on your final salary and amount of years worked, not investment performance. As a result these are becoming less available.
You may be able to top-up your Final Salary Pension by using Additional Voluntary Contributions (AVC) provided through your employer’s scheme.
The State Pension is a regular income paid by the government once you reach the ‘State Pension age’. The level of income is based on the level of National Insurance contributions you have made during your working life. If you’d like to know more details then visit the state pension page at the governments’ website.
For those reaching the age set by the government after the 6th April 2016 and satisfying the eligibility criteria you may qualify for the new State Pension.
A Truro based financial advisor can create a financial plan to help plan your income in retirement.
For further information on Pensions you can always check out The Pensions Advisory Service
Pensions and investments are risk-based products. This means that the value of your initial investment and any income generated can fall as well as rise. If you are in any doubt we highly recommend that you seek financial advice when deciding which options are the best for you.
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