What is a pension?
It is a tax efficient way of regularly savings whilst working to fund an income for when you stop working (retirement). Some refer to pensions as a vehicle to fund your wages after working life ends. There are three main types of pension plans
- Workplace pension
- Personal Pension
- State Pension
Introduced in 2012, Auto Automatic enrolment is when an employee who meets certain requirements is made a member of a workplace pension scheme without needing to ask to be part of it. In the past, it was up to workers to decide whether they wanted to join their employer’s pension scheme. Since 2012, employers have been gradually required to automatically enrol their eligible workers into a workplace pension scheme. As a result, lots more younger people are able to start building up funds earlier in life that can be used in later life to provide an income
- £11.7 billion of individual contributions were made to personal pensions in 2020 to 2021, up from £10.6 billion in 2019 to 2020.
Personal Pensions
A personal pension, also called a private pension, is a type of pension you can set up yourself. In addition to your workplace pension. You can set-up a personal pension. You have a choice of provider, what you wish to contribute (within the respective limits that apply). As with a workplace pension, the government will also contribute to your personal pension through tax relief.
They are normally a defined contribution pension schemes, so the value of your personal pension when you retire will depend on how much you’ve contributed to it, investment returns and tax relief. Self employed individuals would typically use a personal pension arrangement.
- £2.0 billion of individual contributions were made by self-employed members in 2020 to 2021, up from £1.7 billion in 2019 to 2020.
State Pension
The state pension is a pension you’ll receive from the government once you reach the state retirement age, provided you have at least ten years’ worth of qualifying national insurance contributions or credits and meet the other eligibility criteria laid out by the government
Why pensions?
- Disciplined approach to savings – You can only access your benefits from age 55
- Benefit of tax relief added to each contribution.
- No taxes deducted on the investment return.
- Inheritance tax protection on some arrangements
- Bankruptcy protection
- You can move your plan as you change jobs by consolidating it into the new scheme
The stats below show the highest participant group in engaging with pension savings are those aged 40-49 years and greater number of people over the age 22 – 65 years are at similar participation levels. Its not too late to begin savings.
Proportion of employees with workplace pension by age, group and sector
Employee workplace pensions in the UK – Office for National Statistics
Do you need help setting up a pension? Please speak to one of our financial planners
