Pensions Explained – What is a Pension Plan & What Options are Available to You?
Pensions planning is a major consideration for many of us as we move toward retirement age.
Pensions for many are a far off concern but having the right scheme in place can pay serious dividends by the time you approach the end of your working life.
What is a Pensions Scheme?
Simply put, a pensions scheme is a type of savings plan to set aside funds for later in life. Often with a favourable tax regime, pensions provide financial stability for millions in later life.
There are several types of pension schemes. Some may be run by your employer, others you can set up by yourself. And saving into one scheme doesn’t mean you can’t save into another or use other tax-efficient savings plans like ISAs.
When retirement age comes, there will be several options available to you. These may include being able to take a tax-free cash sum and the added security of being able to receive a regular income.
What Type of Pensions are Available?
Aside from your State Pension, you have a number of private pension schemes available.
Put simply, there are five main types of private pension arrangements in the UK that can be grouped into the categories:
- Occupational Pension Schemes (OPS) – These are schemes that are workplace related.
- Additional Voluntary Contribution Pension Schemes – There may be a limit in place for your existing OPS setup – this gives you the option to add additional voluntary contributions to top up your OPS.
- Personal Pensions – Personal pensions are an entirely voluntary pensions programme that allows you to put in as much or as little as you choose. This could be a good alternative for those that are self employed or for those who wish to diversify their pensions portfolio.
- Buyout Policies – Known as the s32, Buyout Policy Pensions are usually defined as having a contract between yourself and the provider directly. The provider is usually an insurance company and were used by workers to switch a pension built up in a workplace to an individual policy upon leaving that particular employer.
- Retirement Annuity Contracts (RACs) – Retirement Annuities Contracts (RACs) are a type of pension scheme that were available to the self-employed, or workers not offered a workplace pension before July 1988.
Whilst there are five main categories of pensions, there can also be variations in each category. For example, there are many different types of occupational pension scheme as they can offer different types of benefit or be aimed at different groups of employees.
We would always advise you to take expert advice – get in touch with our team of pensions experts today to work out the best pensions plans for you!