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Types of Pension

The type of pension scheme you end up with will broadly depend on your situation and your goals for retirement. There are a number of different schemes available, and you can have more than on e at any one time.

Below is a bit of detail about the most common types of pension, and how you can go about starting a scheme.

Company / Occupational Pension

This type of pension scheme is common among people who work in the UK. Many employers will give their employees the option to enrol on an occupational pension scheme as part of their role with the company. There are typically two types of occupational pension scheme. These are:

- Contributory
This is where you make a donation from your monthly wages, the amount of which is determined by the scheme, to the pension plan, in addition to a contribution from your employer

- Non-Contributory
In this type of occupational pension scheme your employer will be solely responsible for all contributions.

You do not have to enrol on your occupational pension scheme, however the Government has recently introduced Auto Enrolment, a scheme aimed at getting all companies to help their employees save for retirement. Within this scheme, employees are automatically enrolled on the company’s pension scheme, and if you do not want to take up the option, you must opt out.

This scheme will be started in the larger companies across the UK, before filtering into smaller companies.

Stakeholder Pension

A stakeholder pension is a scheme that you can invest in yourself. What makes a stakeholder pension scheme different from other personal pensions is that it must meet minimum Government requirements on capped charges and low minimum payment levels.

Stakeholder pensions are usually opened and operated by those who do not have access to an occupational pension scheme. They work in much the same way, and you can usually pay into the scheme on a monthly or annual basis, up to a maximum of your choice. It is worth noting however that there is an annual cap on the amount you can pay into the scheme that will receive tax relief, as with every type of pension scheme.

Self-Invested Personal Pension

A self-invested personal pension, also known as a SIPP, is a type of pension scheme that is opened and controlled by you. It allows you to make all of your own investment decisions, and as such does require a certain level of competence in choosing and managing your own funds.

The charging structures used in SIPP’s are different to other types of pension, and can be confusing and expensive if you do not know what you are doing. Because these charges are usually higher, it is also worth noting that SIPP’s lend themselves to those who wish to make higher contributions to the fund than other types of pension scheme.

Because of the fact that you become the fund manager with a SIPP, it is vital that you pay close and regular attention to the plan. It is also important that you seek financial advice if you find the plan is not performing as expected, or are unsure of where to invest. Mistakes can be very costly and could seriously affect the value of the fund.

State Pension

Everyone who has worked in the UK and has paid National Insurance contributions will be entitled to a state pension when they retire. In order to get the full state pension you must have worked in the UK for at least 30 years. The full State Pension currently stands at £110.15 per week.

For more help and advice about different types of pension, or for help enrolling on a pension scheme, please contact one of our advisors who will be happy to help

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