State pension, workplace pension and personal pension: how they work and what are the differences
People living and working in the United Kingdom, have the opportunity to qualify for the State Pension, once they reach retirement age and provided they have accrued the minimum number of years of contributions.
State pension is not the only pension scheme available for UK citizens, as a matter of fact, there are two additional pension plans which may allow to increase the income to enjoy a comfortable retirement, i.e., workplace pension and personal pension.
A personal pension – also called private pension – is a financial product used by people who want to save money for retirement. This type of pension plan can be set up by relying on wealth management companies which in many cases also offer the possibility to open the account online. In this regard, it is possible to get further information on how this plan works and how to open it at this link https://www.moneyfarm.com/uk/pension/.
On the other hand, workplace pension works differently, indeed it must be provided by the employer to its employees who comply with specific requirements.
If you are interested in finding out more about the characteristics and the differences of these three pension schemes, keep reading.
State pension
The first and most common pension scheme is the State pension, which can be claimed with a minimum of 10 years of contributions, even if not continuous. As for the retirement age, this is currently set at 66 for both men and women but will be raised to 68 in the next years.
The new State pension, which is recognised to all men born after 6 April 1951 and to all women born after 6 April 1953, has a weekly amount of £185.15, while the old state pension, which is recognised to those born before the above-mentioned dates, offers a cheque worth £141.85 per week.
Workplace pension
In addition to the State pension, some employers may be entitled to get a workplace pension.
Since 2012, employers have been compelled to enrol employeesin a pension scheme that allows them to accumulate money for retirement.
This is compulsory when the employee is over the age of 22 but below retirement age, regularly works in the United Kingdom and has an annual income of £ 10.000 or more.
Whenever the employee moves to another company, he or she does not lose the right to the previous pension scheme. As a matter of fact, he or she can choose either to keep it as it is, opening a second pension plan, or to merge the two plans together.
Personal pension
The latter pension scheme one can access to is the personal pension. This type of pension plan is available to everyone: employed, self-employed or unemployed.
As mentioned earlier, a personal pension can be set up with authorised providers and it allow the holder to deposit periodic contributions that then will be invested. For example, SIPP, acronym which stands for self-invested personal pensionallows contributors to choose which securities to add to the fund and to make changes to the portfolio at any time.
Of course, those who have no experience in the investment world can entrust the management to professionals in the sector, in order tocreate a portfolio that is as stable and diversified as possible, with reduced risk. Indeed, it should be born in mind thata personal pension is a real investment, and as such it carries risks and could lead to potential losses.
Conclusion
The United Kingdom has an articulated pension system that can adequatelymeet the needs of those who, at the end of their working years, have to deal with their pension cheques.
From the State pension to the workplace pension, designed for those who work or have worked as employee, to personal pension, also available to the self-employed, the possibilities are numerous, and everyone can find the one that best suits their needs.