Are you planning on opening a pension trust, but you don’t know how pensions work in the UK? You’re in the right place. Let’s have a look at how retirement works for British citizens and at the many different plans currently available in the UK. A pension is a fund that citizens can open to deposit their savings in order to try to secure a stable future for themselves and for their family. So, a pension is not just a regular savings fund where you can deposit money, but it may be a long-term savings scheme intended to grant the account holder an income to peacefully live on when he stops working. However, these kinds of funds come with very specific rules. For instance, all workers can always count on the support of their employers, who in the UK are compelled to contribute to their employees’ pension pot. Furthermore, when opening a pension trust you won’t be able to access your money at any time: a date has been set for you to be able to withdraw your savings, which is 55 years old for any pension type and 66 years old for the state pension. This rule will prevent you from withdrawing before the time and will try to help you build a significant amount for your future. However, you can also opt for more flexible solutions, such as Moneyfarm’s pension drawdown service which offers several options when it comes to decide how much and when you need to withdraw. But what are the most common savings scheme? Let’s have a look at them.
Are you an employee? The workplace pension is the plan for you
If you’re an employee, the workplace pension may be the right trust for you. It can also be called company pension or occupational pension, and it consists of a plan to which employers contribute by monthly depositing a percentage of your salary. The Government will also contribute through tax relief. The sum deposited will then be invested by the pension provider: this will give your fund a chance to grow but it also means that the amount you get will always depend on how well the single investments perform.
Are you an independent worker? Here’s how the private pension works
On the other hand, the private pension has been intended to provide an income to self-employed workers. It is indeed a kind of pension trust which gives the holder more freedom when it comes to choosing the pension provider and how much to put on the trust. This retirement fund has been designed to help independent workers to build their pot, given that they obviously can’t count on their employer’s support. However, everyone can decide to open a personal pension in order to arrange the pension himself or herself even though he or she has a workplace pension.
Looking for a plan based on your contribution? Here’s the state pension
In the UK you can also opt for the state pension, which is a periodic payment on behalf of the Government that you can ask when you approach your retirement age. To be eligible for this retirement plan you must meet some rigorous requirements: only women born on or before 5 April 1953 and men born on or before 5 April 1951 can open this kind of account. Nonetheless, if you’re born after these dates, you’re still entitled to an analogous kind of trust, which is called new State Pension. To get the state pension you will also have to prove to have at least ten years of contributions. Unlike the other pension funds, for this kind of scheme the pensionable age has been set at 66.
Sources: zurich.ie / gov.uk