Using Different Types of Pensions to Fund Your Retirement
Your pension is one of the foundation stones to a happy and fulfilled retirement. For this reason, it’s one of our first considerations when working with clients on their retirement planning. This can be a surprisingly complex task as we discover multiple different types of pensions scattered over a number of employers. Is this a problem? Not at all, so long as we can track down the providers and account details.
Pension provision is a marketplace in the UK. Many employers set up workplace pension pots for employees, and these sit alongside a range of other types of pensions. If you work for a number of employers throughout your career this can become quite complicated. It was estimated, back in 2016 that there was around £400 million in unclaimed pension savings, simply because people had lost track of the schemes they were a part of.
What Are the Different Types of Pensions Available?
As there are a number of different types of pensions, the team at Harpur Wealth Management has created a quick guide:
1. Defined Benefit Pension
This is also known as the ‘final salary pension’. It’s a workplace pension that guarantees a retirement income and the option of a tax free cash lump sum. This is based on your salary, and the number of years you’ve been with the company. The age at which you can access the benefits is normally 60-65.
2. Defined Contribution Pension
Also known as the ‘Workplace Pension’ or ‘Company Pension’. Employees are normally automatically enrolled into their employer’s pension scheme, although they have the right to opt out should they wish. Your employer also pays into your pension so long as you are contributing. Your pension savings can be accessed from 55 onwards as a tax free cash sum, or income.
3. Self Invested Personal Pension (SIPP)
If you would prefer to have control over where your pension savings are invested, this is the scheme for you. A SIPP allows you to take full responsibility for the investments you make, and their management over time. The money cannot be accessed until you reach 55, at which point 25% of your savings become available as a tax free sum.
4. State Pension
This is a weekly payment paid by the government once you reach 66. You need to have made 10 years’ worth of National Insurance contributions in order to receive anything at all, and 35 years’ of contributions to receive the full state pension. The basic payment is currently £137.60 per week.
5. Self-Employed Pension
If you are self-employed you won’t have the opportunity to join workplace pension schemes. It’s important, therefore, to set up a personal pension to create long-term savings for your retirement. You’ll be able to make regular contributions, or make ad hoc payments whichever suits you best. In this case your provider will claim the tax relief and add it to your funds.
Working with Harpur Wealth Management on Retirement Planning
Everyone has different plans for their retirement and the Harpur Wealth Management team can help you to ensure that you can achieve them. Our financial advisors work with clients to create retirement income using their pension pots. If you’d like to find out more about using your pensions efficiently to fund your retirement, make an appointment to talk to us about pension planning.