What are the Different Types of Pension?

In October 2020, the government announced that the state pension age had risen to 66 years old. That means you’ll need to wait a bit longer to access your pension pot, but this doesn’t have to be bad news. Ultimately, if you make the right choice with your pension, you should be financially secure during your retirement.
The big question is – what pension is right for you? Here’s a run-through of the options on offer.

The main pension types

Basic state pension
If you’ve been paying your national insurance for 30 years, you’ll be eligible to receive a basic state pension. The full basic State Pension is £169.50 per week. You may have to pay tax on your State Pension. If you're a man born on or after 6 April 1951 or a woman born on or after 6 April 1953, you'll get the new State Pension instead.

New state pension
The State Pension increased by 8.5% on 6th April 2024 in line with the full Triple Lock. The New State Pension increased from £203.85 to £221.20 per week and the Old State Pension increased from £156.20 to £169.50 per week.

Workplace pension
If you work for an employer as a salaried worker, it’s likely you’ll have a workplace pension. It’s sometimes called a ‘defined contribution’ (DC) pension, and it’s mandatory for your employer to enrol you in it, unless you specifically choose to transfer to another pension product.
Under the current terms, your workplace will contribute 3% and you’ll pay in 5%, so it’s a fairly good deal. Most workplace pension schemes set an age when you can take your pension, usually between 60 and 65. Some companies offer to help you get money out of your pension earlier.

Final salary pension
The final salary pension is another type of workplace pension, but the pay-out is structured in a different way. In this instance, the amount you’ll receive in retirement is based on your salary, and is paid to you as a set sum each year. Sometimes it’s called a defined benefit (DB) pension, or even a ‘gold-plated’ pension, due to the fact that they’re often financially advantageous. However, they’re also becoming increasingly rare, as employers aren’t so keen to offer them anymore.

Self-invested personal pension (SIPP)
It’s becoming increasingly popular for people to transfer their existing workplace pensions into a self-invested personal pension (SIPP). There are some major benefits for doing so, as you’ll enjoy greater flexibility and possibly more money too. You’re free to select your SIPP provider and choose exactly how much you’ll invest.
It’s important to note that SIPPs aren’t without their risks. As such, it’s vital to work with a reputable financial advisor, rather than attempting to select a SIPP product on your own. That way, you’ll be able to avoid common pitfalls, such as investing in an unsuitable pension scheme, or taking on too high a financial risk.

Which pension is right for you?
If you’re not sure which pension product suits your needs, get in touch with us. We’re here to help you explore your options and identify the right pension for your financial situation. Call us today on 016973 25852 to find out more.