What is a Pension Fund? Which Type Should You Choose?

—TechRound does not endorse or recommend any financial investments or opportunities. All article and website content is purely informational—

A pension fund is a particular type of saving scheme which has been precisely projected to help you save money for your future and to try to grant an income you can live on when you stop working. Nowadays, opening a pension fund basically means to start investing in your future by putting money aside every month.

In the United Kingdom, citizens have a wide choice regarding the types of retirement plans available, in order to meet the needs of as many people as possible. Let’s go deeper into this matter.

How do pensions work in the UK?

As already mentioned, UK citizens have the opportunity to choose between three different types of pension schemes, each of which has been intended to meet the needs of certain categories of people. This way, every citizen of the United Kingdom can evaluate which type of scheme is best suited to his working and economic situation and choose the right one. Although every scheme currently available has its own characteristics, they all have some points in common.

As a matter of fact, every retirement plan has been designed to provide tax and contributions benefits to help you find the best way to save money and to build a solid financial future. Also, when depositing your savings in a pension fund, you’ll be basically investing it. That gives your capital the chance to grow over time. However, you should never forget about the risk that comes with any kind of investment: your money growing or decreasing will only depend on the market’s fluctuations.

Lastly, a date has been set for you to finally access your money. In the UK, this date is currently set at 55 years old for all retirement plans, except for the state pension. When will you get your State Pension then? Let’s have a look on the different types of retirement plans currently available and the retirement age for each of them.

What are the main types of pensions in the UK?

The first kind of retirement plan available in the United Kingdom, which is also the most common one, is the workplace pension, which can also be called occupational or company pension. It is a retirement scheme to which your employer will monthly contribute to help you build your pension fund.

As a matter of fact, in modern times, all British employers are compelled to contribute to their employees’ retirement scheme. In this case, the government will give his contribution as well by applying tax relief. This kind of retirement scheme can be divided in two categories: by choosing the defined contribution pension scheme both you and your boss will contribute to your pension fund. The money deposited will be then invested by the pension provider.

On the contrary, by choosing a defined benefit pension scheme you’ll have access to a pre-established amount once you reach the retirement age. The second kind of pension fund is called personal pension, or private pension. This scheme gives you more control on the amount you can deposit every month. It is in fact a really good choice also for independent workers. Both for workplace pension and personal one, investor can access their money as they reach 55.

Lastly there’s the state pension, which has been designed for you to access your money as soon as you reach the retirement age, which in this case is set at 66 years old. In order to be eligible for this kind of pension you will have to prove to have at least ten years of contributions. As a matter of fact, this scheme bases his monthly payments on your contributions.

—TechRound does not endorse or recommend any financial investments or opportunities. All article and website content is purely informational—