When planning for your retirement you will want to make sure you have the most effective pension planning strategy in place to ensure you have a financially secure future, not only for you but for your family too.
One of the first steps in pension planning is deciding which type of pension you want. There are many different types of pension available and understanding the difference between them can be a challenge. Which is why it is advisable to seek independent pension advice to ensure you find the best pension for you.
Not only are there many different types of pension, the rules for each pension scheme can vary from provider to provider, make it even harder to determine which pension is a good fit for you. Working with an independent pension adviser will ensure the pension advice you receive is unbiased and focussed on your goals and objectives.
If you are looking for independent pension advice in your local area, we can help you find the right pension adviser to help you with all aspects of pension planning and reviewing to ensure you have the most effective and efficient strategies in place.
What are your Pension Options?
In the UK, there are many different types of pensions available. These types of pension will fall into one of two categories; defined benefit and defined contribution. Most of the options will depend upon what your employer offers during your career. Changes to pension legislation has given members more flexibility with their pensions than ever before.
Therefore, there are a number of important points you should consider if you are starting a pension or making changes to your current scheme. It is advisable to seek independent pension advice before making any changes to your pension plan. Below we look at defined benefit and defined contribution schemes in more detail.
Defined Benefit Pension Schemes
Also known as final salary schemes, defined benefit pensions are not generally available to new employees and are generally offered by older, more established organisations. The pension income amount in a defined benefit pension scheme is determined by:
- Length of time the member has been in the scheme
- The member’s final salary or salary average (depending on the rules of the scheme)
- The accrual rate – the defined proportion of your earnings when you retire according to the length of your membership
One of the biggest benefits of defined benefit pension schemes is that they offer increased financial security which is not dependent on investment returns.
Defined Contribution Pension Schemes
Self-invested personal pensions (SIPPs), money purchase occupational pensions and stakeholder pensions are all types of defined contribution pension schemes. They work by the pension member building a pot to provide an income throughout their retirement. The final amount is not defined and is determined by the amount of money contributed to the pot and the investment performance.
While rules may vary from scheme to scheme, most defined contribution schemes work by the member and their employer making regular contributions to build a pension pot. This money is then placed in other investment options such as stocks and shares. While the aim is to grow the pot, there is a risk that the pot value could decrease if there is an uncertain financial market.
Once members reach the age of 55 they can access their pot and would be able to:
- Withdraw 25% of pension pot tax-free
- Withdraw the remaining 75% as a taxable lump sum
- Buy an annuity
- Take flexible benefits
- Use a combination of all options
To help you decide which type of pension is best suited to you and your requirements it is recommended you seek independent pension advice to ensure you are making an informed decision and are receiving advice that is tailored to you and your circumstances.
The financial advisers we recommend are experienced in retirement planning and regularly work with their clients to provide independent pension advice across the UK. Our financial advisers will work with you to determine which pension plan is best suited to your circumstances and will provide sound retirement planning advice.
At Pensionadvice.org we can help you find a FCA registered financial adviser for independent pension advice in your local area. All of the financial advisers we recommend offer bespoke financial advice that is tailored to your unique personal circumstances.