3 Things You Need to Know About Pensions

Pensions are important — they could hugely affect your future.

Essentially, a pension is a fund that you, your employer — and at times, the government — contribute to. By entering a scheme, you may ensure that there’s enough to live off once you’ve retired.

But there’s much more to it than that. This guide explains all you need to know on the subject.

  1. What Types of Pension Are There?

Put simply, there are two main types of pension: state and private.

State Pensions

State Pensions are government-funded.They can be claimed by people who have contributed National Insurance or have received credits through certain benefits. With the latest model, you will need a minimum of 10 years’ worth of contributions to be eligible for this type of pension.

Private Pensions

Private Pensions take contributions from you or your employer. They fall into two distinct categories.

A Defined Contribution Scheme can be controlled by either you or your employer. Its premise is that the money put in is then placed into investments by the pension provider.

And then there’s Defined Benefit schemes. These are typically organised by an employer and come under the name ‘Workplace Pensions’. Unlike Defined Contribution plans, how much you’ll eventually receive is usually dictated by your annual income and the duration of your employment.

More information about these pensions can be found on GOV.UK.

  • What If I’m Self-Employed?

Are you currently self-employed? Are you planning to be at some point in the future? If so, State Pension rules still apply to you. That’s because its only based on a person’s NI record. You can benefit from tax relief on your contributions,too. 

Put aside a small amount each week to further increase the likelihood of a more comfortable retirement.

  • What Are the Benefits?

A pension doesn’t just ensure financial protection for the future. It’s also a tax-agreeable saving method.

If you’re a UK tax payer and you or your employer put money into a pension scheme,it’s worthy of tax relief. Basically, a proportion of what would have gone to the government will now be allocated to your pension fund, instead.

Even if you earn too little to pay tax, the government will still apply tax relief to any pension scheme that you opt in to.

And this is just one of the benefits. Automatic Enrolment means that businesses must enter employees into pension schemes by law.

So, pensions are the easiest and most cost-effective way to guarantee that you maintain a high living standard long after your retirement.

With so many options, you needn’t worry about the future. Pensions provide financial security for most people —and so, it’s worth seeing you’re eligible for entering into one. If you do, you could ensure a happy and stable retirement.

Author: Editorial Team

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