THE VALUE OF PENSIONS AND THE INCOME THEY PRODUCE CAN FALL AS WELL AS RISE. YOU MAY GET BACK LESS THAN YOU INVESTED.
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. This is currently £134.25 a week. You may also be eligible to receive a top-up pension (sometimes called the second state pension) – this is the case if you’re currently making NI contributions for both the basic and new state pensions.
New state pension
The new state pension is in place for those who were state pension age after April 6th, 2016. The maximum that you can claim under this pension is £175.20 a week, and in order to receive this full amount, you’ll need to have made 35 years of national insurance contributions. To qualify for any level of pay-out under the new state pension, you must have contributed to NI for at least ten years.
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 Lighthouse Financial Advice. We’re here to help you explore your options and identify the right pension for your financial situation. Call us today on 01697 325852 to find out more.
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