What is a pension? How does it work? When will you be able to access the savings you put aside for your future? A pension is a plan designed to help you set aside a significant amount that will provide you and your family financially with an income for when you stop working. When you open a pension fund, each month you will be required to deposit a percentage of your earnings, thanks to which you’ll be able to sustain yourself in the future. In fact, the main reason why so many citizens decide to get a pension fund is the possibility of ensuring an economically stable future. Anyone who lives in the United Kingdom will have different options at his or her disposal and will be able to choose the one that best suits their situation. Every pension plan available nowadays will provide a wide range of tax benefits. For example, the British Government will give its contribution through tax relief.
How much do you need to put aside to sustain yourself in the future? Can you take money out of your pension before 55? These are the questions that most UK residents ask themselves when deciding whether to open a pension or not. When it comes to accessing your savings, you will have to respect a strict rule: the retirement age, which has been arranged by the UK government to help you raise a considerable amount thanks to which you’ll be able to support yourself financially when you stop working. Thus, the retirement age refers to the date on which you will be free to withdraw your savings, which in the UK has been set to 55 years old. This way you will not be tempted to access your money ahead of time. Nevertheless, in some specific cases, it is also possible to access your money earlier. The last thing you need to know about British retirement plans is that the capital you put aside will be invested by the pension provider. This will give it the chance to grow over the year, but will also be putting it at risk. That’s why the amount you get when you stop working is always unpredictable.
The workplace pension: a fund meant for employees
The first retirement plan available for British citizens is the workplace pension. It is indeed a retirement scheme meant for employees, to which the employer will regularly contribute by depositing a minimum amount. In the United Kingdom, all employers must necessarily help build their employees’ pension pot. Tax relief will also be applied by the Government. This particular type of retirement account comes in two different versions. The first one, which is also the most outspread, is called defined contribution pension scheme. If you decide to opt for this specific scheme, you should know that your savings will always be invested by the pension provider you chose. This way, your savings will have the chance to grow over the years. However, investments are risky and unpredictable, so you should always be prepared to face potential losses. On the other hand, you can choose the defined benefit pension scheme, which will grant you a pre-defined quantity as soon as you reach the age of 55.
The personal pension: a plan meant for self-employed workers
The personal pension has been invented for all independent workers and freelancers who want to set money apart for when they stop working. In this case, you’ll be given the chance to choose how often to deposit, and how much to put into your fund.
The state pension: a plan based on your contributions
The last plan available for British residents is called State pension, which today is really popular as well. In this case, the amount you receive after your working year will exclusively depend on your contributions. As a matter of fact, before opening this kind of account you will have to prove to have more than ten years of contributions. Moreover, for the State pension there’s a different retirement age, which has been fixed at 66 years old.