A pension is your financial security for your future after you have retired from working. For the majority of people the government will provide a state pension, covering all of your basic needs, but adding money to a workplace pension during your career is beneficial to you.
Since 2012 there has been a rollout of workplace pension schemes as mandatory. The company you work for now has to offer a pension scheme that they will also pay into, alongside your own contribution from your wages. You can opt-out of the scheme, but one has to be offered to you legally.
A workplace pension takes money straight out of your wages each month, and if with an automatic enrolment workplace pension they too will have to match your contribution. You are eligible for automatic enrolment if you work in the UK, are over 22 but under State Pension age, earn over £10,000 per year and are not already part of a private pension scheme.
Final Salary Pensions
There are two main options for workplace pensions. Final salary schemes (defined benefit schemes) are linked to your salary. So if your wage increases, so does your contribution to your pension pot. Your pension is based on the number of years you have paid into the scheme and your salary at retirement. Over time you agree to pay a set percentage of your wage into the fund, with your employer making up the rest.
Money Purchase Schemes
Becoming ever more popular, money purchase schemes (defined contribution schemes) are where your contributions to the pension scheme are invested in order to aim for a certain amount upon your retirement. This type of scheme offers tax benefits as well as the flexibility of risk, where you can choose the level of risk that you want your investment to be made, even if you can’t guarantee the amount you will receive upon retirement.
Workplace pensions schemes often offer other benefits as well, including life insurance as part of the pension, giving your dependents a lump sum or access to your pension in the event of your death during employment, access to your pension if you are forced into early retirement due to ill health, and pensions for your partner and other dependents when you die.
Planning for your financial future is important. PiggyBank is here to support short-term fixes and assist with payday loans over a number of weeks and months, however, we strongly recommend you think to the long-term too and secure your future.