A pension is a scheme designed specifically to help people set aside money for their future, thanks to which they can be able to enjoy the years when they will no longer work. Basically, a pension is a regular payment made by the government or a private company to a person who does not work because she or he has reached retirement age or has become ill.
Today, there are many types of pension schemes in the UK, and each one may differ from the others in some characteristics and requisites. Moreover, if you want to have an idea of how much you will get from your pension, you can also rely on some calculator tools, such as the teacher pension calculator. Let’s take a look at the retirement plans available for UK citizens and how they work.
How do pensions work?
The UK government has created many different schemes to meet the needs of as many people as possible. Although these plans are all different from each other, some common rules apply to each of them. The first to keep in mind is the retirement age. It is a date, fixed and decided by the Government, before which it will not be possible to have access to one’s savings. Although it may seem like a strict rule, it is actually a way to help you set a significant sum so that you can enjoy your retirement years. In fact, this way you won’t be tempted to withdraw money ahead of time. In the UK, the retirement age has been set at 55 for most of the available schemes. Another important thing to keep in mind when it comes to pensions in the UK is that the Government will always contribute through tax relief. Lastly, always keep in mind that the money you deposit into your pension fund each month will be invested by the pension supplier. This is a way to give your savings the chance to grow over time. However, you should also consider the risk involved with every kind of investment, since they are subject to constant market fluctuations. This means that the amount you receive will always depend on the performance of the investment, and you may end up with less than you expected.
All the British pensions schemes
As mentioned above, there are different pension schemes in the UK, namely:
- Workplace pension
- Personal pension
- Private pension
The workplace pension is currently the most common retirement fund in the UK. It is in fact a retirement plan intended to help employees set aside money for their future after work. But how does it work? Each month, you and your employer will have to deposit a small percentage of your salary which will progressively build your pension pot. In the UK, employers must necessarily contribute to the future of their employees. As already mentioned, the amount you both deposit will then be invested by the pension provider. On the other hand, the British pensions that are provided by private companies, also called personal pension, has been designed for freelancers and self-employed workers, who obviously cannot count on the support of the employer. However, everyone can decide to open this kind of account aside from the others, since this scheme gives the possibility to have more freedom on the amount to deposit and how often to deposit. Lastly, there’s the State pension, a scheme solely based on your previous contributions. To get it, you have to show to have at least ten years of contributions. In this case, the retirement age is set at 66.