What is a Pension?
Despite constituting the largest long term savings commitment a person will make apart from buying a house, pensions are frequently misunderstood. A pension is a method by which a person can save money so that they can be sure to have an income when they retire. The structure by which these payments are made is referred to as a ‘pension plan’ and the fund accumulated under such a plan is tax-free. The income payments made once the plan is completed are usually of regular and equal amounts and continue until the policyholder passes away. While pensions are normally used as retirement plans they may be received on the basis of disability or other circumstances.
The most simple form of pension is a Stakeholder Pension.
Age of Retirement
Upon reaching the age of retirement, the government automatically provides a State Pension to those who have built up enough National Insurance contributions to achieve the threshold of qualifying years. However, additional pensions can also be arranged by way of personal savings plans or, more commonplace, through employers who will normally require regular contributions from an employee’s income to build the saving. Consequently, pension plans are seen as a way for an employee to transfer part of their present income stream toward their retirement income.
In order to suppliment your State Pension it is a good idea to set up a personal pension. To set up a Stakeholder Pension plan for yourself online here
Level of Income
The level of income on retirement will largely depend on how much is saved, how these savings are invested, at what age a person wishes to start receiving income and the annuity purchased with the accumulated lump sum, that is, the income an insurance company will give the person for the rest of their life.
There is a large amount of choice regarding the types of pensions available and as such finding the one that is best suited to your circumstances and needs can be tricky. It is important that you conduct thorough research and it could be advantageous to consult an IFA (Independent Financial Advisor).