A Guide to UK Pension Schemes
Author: Derek Both
Pensions are plans that offer steady income to a person after they have
retired. Pensions are essentially a deferred compensation that offers tax
advantages to the employer and employee. Pensions can be in the form of
an annuity, or a cash balance that is drawn from after retirement. Whichever
the case may be pension plans allow employees to prepare for their retirement.
In the United Kingdom, pensions come in many forms.
Basic state pensions are offered for most people and the amount received
depends on the amount of contributions that person has made to the National
Insurance fund. Factors such as being married also contribute to the amount
of money a person will get each week from the basic state pension. The State
Second Pension is offered to employees that are not self employed and was
introduced by the Child Support Pensions and Social Security Act of 2000.
It offers three distinct payout rates determined by the amount of contributions
made.
Personal pensions were introduced in 1988 for people that are not a part
of a company pension. This is a great tool for people who are self employed
or work for a company without a good pension plan. Since 2001 members of
a company pension scheme can also take out an additional personal pension.
Occupational pensions are set up by employers for employees. Most occupational
pensions usually offer an eightieth of the final remuneration for each year
of work plus a lump sum of up to a hundred and fifty percent of the final
remuneration.
Employers have to offer employees the chance to invest additional contributions
to their pension. These are called additional voluntary contributions. An
employee can voluntarily invest up to a hundred percent of their total remuneration.
Free standing additional voluntary contributions are a variation of additional
voluntary contributions. The difference is that free standing additional
voluntary contributes are made to a pension scheme run by a third party
pension provider rather than the employer. This allows for a wider range
of investment choices.
Self invested personal pension schemes allow individuals to have more flexibility
to how they invest and use their pension funds. Since 2006 individuals can
purchase an annuity as well as using a pension drawdown. Using a self invested
personal pension scheme you can transfer a balance to another pension scheme,
make or receive lump payments, and an employer can even pay into the plan
or match your payments. Since 2006 you can also invest in as many pension
plans as you'd like you have a wide range of investment options available
including shares and property.
Preparing for retirement is a very good idea and the modern pension laws
in the United Kingdom give you many options for paying in and drawing funds.
The manner in which a pension pays out is very important. Flexibility is
key because it is impossible to predict the future and it is important to
have flexible access to your money. You do not want to have a large pension
but not the ability to use the money you need during a particularly hard
month or year.
About the Author:
http://www.icismortgages.co.uk/ are independent financial advisers and mortgage
brokers based in Sussex.