Today the UK gives its citizens a wide choice as to the options available for their retirement years. In fact, UK residents can choose from many different plans, each designed to suit a certain category of people. The most common is certainly the workplace pension, a pension plan specifically designed to allow employees to set aside money for their future. This trust is made in such a way that both you and your boss monthly deposit a minimum amount, which will go into building your pension pot. In the UK, all employers must necessarily contribute to the future of their employees. But how does the workplace pension work? In short, your employer arranges the pension scheme with a provider and the contributions that you and your employer make will be invested. This will give your capital a chance to grow over time, but it will also constantly put it at risk. In fact, since investments are subject to market volatility, the risk of getting less than hoped for is always around the corner. The workplace pension comes in two different types: the first one is called defined contribution pension scheme, which as mentioned above, is a kind of trust to which both you and your employer contribute. On the other hand, the defined benefit pension scheme works differently: in fact, by choosing this scheme you will be able to access a defined amount of money as soon as you reach the retirement age, which for the workplace pension has been set at 55 years old. If you’re not an employee, then you are not eligible for the workplace pension. Fortunately, today you can choose between three different types of pension schemes available for all UK residents. If you want to discover more about how pensions work in the UK and you are wondering about how much money do you need to retire, keep reading: in the following paragraphs we will show you the other pensions’ schemes.
How do British pensions work?
We have seen how workplace pension works. But how do other types of British pension plans work? Even though every plan available is different from the others, there are some really important rules that apply to all of them. The first thing you should keep in mind when opening a new pension trust is that you won’t be given access to your savings until you reach the retirement age. Before then, you won’t be able to withdraw your money or use it in any way: although this rule may seem very strict, it was designed to help you set aside a large amount that you can live with when you stop working. You should also take into account that the money in your pension fund will always be invested by the pension provider. As mentioned above, this may give it a chance to grow, but it also represents a risk. In fact, the amount you get will always depend on how well the single investments performed.
What are the other types of pensions available in the UK?
Once understood how pensions work in the UK let’s have a look at the many types available. The personal pension is another really common type of retirement trust available for British citizens. Unlike the workplace pension, this kind of fund has been intended for independent workers who can’t count on the contribution of an employer. The personal pension gives the holder more freedom when it comes to choosing the pension provider, and how much and how often to deposit on the trust. Lastly, there’s the State Pension, which is a periodic payment on behalf of the British Government based on your previous National Insurance contributions. This kind of trust has a different type of eligibility: in fact, in order to get it, you necessarily have to be a woman born on or before 5 April 1953 or a man born on or before 5 April 1951. However, if you were born after these dates, you are still eligible for a different kind of pension, which is called the New State Pension. Unlike the other trusts, the pensionable age for the State Pension has been set at 66. When you come of age and you claim the State Pension, you will be given access to your savings, the amount of which will depend on your contributions. You also have the option to claim your State Pension and keep on working: in this case, the money you earn won’t affect your fund in any way. However, you might not be eligible for some benefits.