What Kind of Pension is Right For Me?
From state pensions to SIPPs, there are pensions to suit every need - but what are they and which one is right for me?
With so many different and varied choices (and plenty of jargon to go with them), it's a natural question to ask.
If you are considering contributing to a pension scheme, it's important to understand the choices available to you, including; company pensions, the basic state pension, stakeholder pensions, personal pensions and SIPPs - self-invested personal pensions.
What are company pensions?
Any company that has over five employees must offer a company pension scheme - however the scheme on offer is determined by the company and might not suit your individual needs. For example, some employers will choose to contribute to the pension fund while others may not.
It's worth checking out whether your company pension scheme is the best solution for your needs.
How does the basic state pension work?
Not everyone automatically qualifies for the full state pension - whether you do or not depends on how long you have been making National Insurance contributions and whether you have enough 'qualifying years'. Currently that stands at 44 years for men retiring after 2010 and 39 years for women respectively.
Either way, the current state pension is a little over £90 a week for a single person and around £145 for a couple - and there's no guarantee that the rules will be the same when you reach retirement age. For most of us then, we will need to make additional provisions for our retirement through another pension scheme.
What are Stakeholder Pensions?
Stakeholder pension schemes were introduced by the government as an alternative for those who cannot access a company pension scheme. They also act as a low-cost alternative to personal pension schemes - offering lower minimum contributions than many personal pensions, the flexibility to change provider and restricted charges.
The trade off is that stakeholder pension schemes tend to offer fewer choices in terms of investment.
As with all pension schemes, there is a tax incentive to making regular contributions. At present, pension contributions attract tax relief at a rate of 20%. So as a basic rate tax payer, for every £80 you contribute to your pension, you end up with £100 in the fund.
What are personal pensions?
Personal pensions can be used as an alternative - or an addition to - a company pension scheme. They are more flexible than stakeholder pensions in terms of the kinds of investments available and attract the same tax incentives as stakeholder pensions and SIPPs..
What are SIPPs?
SIPPs are self-invested personal pensions. As the term 'self-invested' implies, SIPPs allow you to invest in a wider range of potential investments (including things like commercial property, unit trusts and even art) whereas a personal pension will normally restrict you to a number of funds provided by your pension provider.
SIPPs allow you to take more control over how your pension fund is invested but will usually require some investment knowledge - so it's certainly worth taking expert advice to see if SIPPs are right for you.
The right type of pension for you will be based on your own requirements, the amount you can invest and the amount of control you want to have over your investments within the pension fund.
Speak to your independent financial adviser about your options and they can offer the best pension advice and access to the best pension products available in the whole of the market.
About the Author
Gareth Flanagan is an independent financial adviser at Principle First Financial Services. To discuss your pension arrangements or to start a pension, please visit Principle First at >> http://www.principlefirst.co.uk
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