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Pensions Advice

A pension is a contribution of funds made during an individual’s employment years. The individual will contribute as will another party or parties. This money is then paid back to the individual once they retire through periodic instalments.

There is a UK Government pension, also known as the state pension, which you receive once you reach retirement age (subject to change), and there are workplace pensions and private personal pensions that pay out as agreed with the pension provider. You can find many types of workplace or private pensions, which differ on their structure and how they pay the individual.

Types of pensions

Some of the most common types of private pensions are:

  1. Defined contribution pension schemes
  2. Defined benefit pension schemes
  3. Stakeholder pensions
  4. Group personal pensions
  5. Self-invested personal pensions (SIPPs)
  6. Multi-employer pension schemes
  7. Self-employed pensions

Some of these products cross over into other categories, which can add confusion for people searching personal pension options. We’ve explained some of them in further detail.

Personal pensions

Personal pensions are pension schemes that you opt into independently rather than through your workplace. However, some employers use the same pensions instead of standard workplace pensions. The money put into these pensions are usually used as capital within investments.

Defined contribution pension schemes

A defined contributions pension is a private pension where you and your employer make contributions to your pension pot. The pension provider then invests the funds into various investment products, typically stocks and shares. Your pension fund can fluctuate depending on how investments perform. It’s good practice for funds to be moved to low-risk investments as you get closer to retirement.

Defined benefit pension schemes

A defined benefit pension scheme is also contributed by the individual and their employer. The amount paid back is determined by the scheme’s rules only, usually calculated by your average salary and years in employment. There is a minimum amount you must receive each year of retirement.

Stakeholder pensions

Stakeholder pensions can be opted into by yourself as a type of personal pension, but they are offered through some UK workplaces. These pensions must meet minimum rules set down by the UK Government. Contributions are also used to fund investment products, but your contributions amounts are low and flexible to your needs. The investments are pre-determined, so you do not need to make investment decisions.

Self-invested personal pensions (SIPPs)

Self-invested personal pensions (SIPPs) are a type of personal pension that uses contributions as investment capital. However, instead of not having to make decision about your investment, people with these pensions have more control over what they invest in. They may need to make independent decisions or strategize investments with the support of a financial adviser.

Pensions for the self-employed

Self-employed people do not have access to workplace pensions, and they must decide to use a personal pension instead, which may be the same as what some workplaces offer.

Why use an adviser to help find the right pension?

Using an adviser will help you cut through the noise. Pensions are one of the most complex financial products to understand independently. Choosing the right type of pension for your preferences requires access to clear information and facts. An experienced pension adviser will provide just that, making it easy to know what you need and your options. Avoiding the wrong type of pension is crucial for a smooth retirement.

Reach out to one of our Moneysprite pension advisers to discuss your pension options and plan your retirement. We have advisers from Hemel Hempstead down to London, and back across to Bournemouth, Cambridge and Cornwall, and help clients throughout the UK. Our friendly and patient team are here to assist you.

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