Everyone needs to sort out a pension at some point in their life and the sooner you look into the process the easier it is to deal with. One of the first things that confuses people looking into pensions is the different types on offer.
In this article we will explain the four main types which will hopefully help you feel more informed about which option is most suitable for your circumstances.
State Retirement Pension - this is the pension provided by the government, for some people the level of money provided by this pension may not be enough to live off, however almost everyone is eligible for the scheme.
You can begin to claim the pension at the age of 60 if you're a woman or at the age of 65 if you're man.
The amount of money you received is based upon you National Insurance contributions, if you've been out of work for significant periods of time or under the NI threshold you might need to seek further advice on your entitlement.
Occupational Pension - in the past this was the most common pension people would have in addition to their state pension though with Stakeholder schemes they are becoming far less common.
The pension scheme is set up by your employer for all members of staff who want to become part of the pension. However due to the changing work climate where people move companies more frequently occupational schemes are proving less common.
There are two types of occupational pensions schemes, the first is known as 'Final Salary' with this type the amount you receive from your pension is calculated from the earnings you were making prior to retirement. This is particularly appealing if you've been promoted over a series of years to a senior position towards the end of your career.
The other option is known as 'Money Purchase' here your payments are based on the amount of money you actually contributed to the pension. I.e. if when you started the scheme you only made small contributions you won't receive as larger a payment when you claim the pension.
Personal Pension - some times people will want their pension scheme entirely separate from their employer, this is where personal pensions come in. They are completely independent from your work place and are organised through commercial organisations like banks and insurance companies.
However with personal schemes as the obligation to pay falls entirely with you if you pay in little or not very often it will have a significant impact on the amount you receive. Also their may be penalties for changing the amount you would like to pay in, if for example if you begin working for an employer who has an occupational scheme that may incur a charge.
Stakeholder Pension - increasingly becoming the most popular kind of pension is the stakeholder variety. It falls somewhere between the occupation scheme and personal types. It can be organised by employers, unions or other organisations like the Post Office. The advantage of this type of pension is it's a lot more flexible than personal pensions and has less charges and penalties than other types.
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