The ABC’s of pensions💡👴 👵
One of the many reasons we avoid tackling our finances head-on is because it just seems so...draining. All that financial, technical jargon can leave even the most driven of us feeling totally unmotivated. It often helps to go back to the basics before throwing yourself into the deep end, which is what we want to do with you this week.
First, let’s recap on pension funds: a pension fund is a pool of money accumulated from contributions from employers, employees, or both; it is invested in a range of assets - cash, shares or bonds - and is a tax-efficient form of saving.
Below is an overview of the three different types of pensions available in the UK:
- Workplace pension: Most employers offer pension schemes, but if yours doesn’t, don’t worry - all employers will be legally required to provide pension schemes as of April 2017. One of the perks of a workplace pension is that your employer will generally match your contributions.
- Personal pension: This is independent of the contributor’s employer, i.e - you can have the personal pension in addition to, or instead of, the workplace pension. The personal pension is an individual contract between you and the pension provider; you choose the provider and determine the contributions. You may want to consider this option if you are self-employed, or if your workplace pension isn’t sufficient. There are two types of personal pensions; stakeholder pensions or self-invested personal pensions (SIPP).
- State pension: Once you reach pension age, which is currently 60 but is expected to rise to 67 by 2028, the government will give you regular pension payments. You are eligible for the state pension if you have paid National Insurance contributions throughout your working life.
That’s all nice and straightforward, but once you dig a little deeper, the technical jargon becomes overwhelming. From ‘defined benefit pension’ to ‘tapered annual allowance’, ‘automatic enrolment’ and ‘annuities’, we created this pension jargon buster in nice and plain English to help you navigate the world of pensions. 👉 Take a look at it over here.