Pension Information: Guide To The Basic Facts

Pension Information Guide To The Basic Facts

All of us, regardless of age, are approaching retirement. It’s inevitable, and we’ll all get there whether we like it or not. One of the things that will prepare us for retirement is pension. Pension refers to any amount of money that’s saved, contributed and added to a fund during the working years of an individual, and are withdrawn to serve as retirement income.

A key terminology with pensions is the pension pot. It refers to the collective contribution that you and your employer make with regard to your pension.

There are three categories of pensions:

  • State Pension
  • Defined Benefit Pensions
  • Defined Contribution Pension

The State Pension originates and is paid by the government. For you to be paid State Pension, you have to make contributions to National Insurance while you’re still employed. You can also get an entitlement to the State pension by claiming benefits such as being a parent or being ill especially when you’re unemployed.

Pension Information

Photo Credit: express.co.uk

The defined contribution pension is the aforementioned pot where you and your employer make contributions to it. They include all workplace, stakeholder or personal pension schemes. The size of this pot varies depending on how much each of you contributes to it.

Lastly, the Defined Benefit Pension relates to your salary. It’s paid out for the rest of your life and the amount paid is contingent on how much your earning are and how long you participated in the scheme.

What Choices Do You Have With Each Type Of Pension?

For the State Pension, you can decide to claim it once you attain the State Pension Age. In addition, you have the choice of deferring the pension for it to increase in amount. As per the new April 2016 rules, it will increase by 5.8% each year.

For the Defined Benefit Pension, you can be able to claim it when you reach 65 years. You also have the chance to take it earlier, but it will greatly reduce the amount you’ll get.

You can also decide to transfer your Defined Benefit Pension into a defined contributed pension for easy access to it.

For the Defined Contribution Pension, you can claim it once you attain 55years. At this age, you have all the freedom to utilize your pension pot. Even so, it would be prudent if you build it up instead of withdrawing it. This will make your money to increase; hence meaning that you will have more retirement income.

Pension matters can be tricky at times. It’s so easy to get confused at times, especially when it comes to deciding on a course of action to take. To get acquainted with the right information, you could seek the services of an Independent Financial Adviser that has considerable experience with pensions. You can seek the services of a Restricted Financial Adviser that is restricted to matters of pensions. Another provision available is the Pension Wise. It’s a free service offered by the government that gives guidance on your pension pot.

You should make a point of gathering all information pertinent to pensions from relevant sources.

Share This: