What is a retirement plan and how to choose the best for you

A retirement plan, which can also be called pension fund, is a particular kind of savings scheme specifically designed to help you save money for your future. When you open a pension fund you are basically starting to invest your capital to try to ensure a more stable economic future for you and your family by regularly putting money on it during your working years. These particular schemes are intended to provide an income you can live on when you stop working. Let’s have a look on the most common retirement saving plans available in the UK.

How many retirement plans are available in the UK?

In modern times, UK residents can choose between a wide variety of pensions schemes, each of which has been intended to meet the needs of many categories of people. Every pension plan available at the moment has specific characteristics that distinguish it from all the others. However, there are some rules that apply to all of them. As a matter of fact, all retirement plans available in the UK have been designed to offer a wide variety of tax benefits and to grant the account holder a more stable future. When you add money to a pension fund of any kind, you’re basically investing it to give it the chance to grow over time. Also, the Government will give its contribution by applying tax relief. Your money will become available once you reach your retirement age, which in the UK is currently set at 55 years old, with the exception of the state pension, the date of which has been raised to 66 years old.

The workplace pension

The first kind of retirement plan, which is also the most popular in the UK, is the workplace pension, which is also called company or occupational pension. Let’s see how it works. Nowadays, all employers are compelled to provide their employees with a pension scheme. During your working years, both you and your boss will contribute to your fund by monthly depositing a minimum amount to which will be added the Government’s contribution, which will apply tax relief. This particular type of retirement plan offers two different subcategories. The defined contribution pension scheme requires that both you and your boss will contribute to your fund by monthly adding money on it. The funds you both deposited will be then invested by the plan provider. This way, you’ll have the chance to see your money grow in time: the amount you get will depend on the performance of the investment. Like any other kind of investments, there’s always a chance that you end up getting back less than you put in. The second kind of occupational plan is called defined benefit pension scheme, which gives you access to a pre-established amount at your retirement age. In this case, the amount you get will depend on how many years you have worked and on the amount you deposited every month. Both these kinds of pensions will grant you access to your savings once you reach 55 years old.

The personal pension

The personal pension, which can also be called private pension, is a particular type of scheme intended to provide the account holder more control over the amount that can be deposited. This is usually a very convenient plan for all independent workers but also for employess, that will be able to choose how much to deposit every month with no restrictions. The government will contribute to this retirement plan as well through tax relief. Just like the workplace pension, you will be able to access your money at 55 years old.

The state pension

The state pension is the last kind of retirement plan available for UK residents and it consists in a regular payment based on your contributions and provided by the Government once you reach your retirement age, which for this kind of pension has been recently raised at 66 years old.