Planning For Retirement
There is a growing sense of foreboding that dominates people who are approaching retirement's minds. This is because of the fact that the UK has an ageing population and the strain upon pensions is getting higher and higher. This has led many in the country to believe that state pensions will be stripped back even more than they already have been.
The pension age is due to be increased and many people are now predicting the state pension's value to fall. For this reason it is increasingly important to start planning for your retirement now, so that you can be financially secure when you finish working.
The good news is that there are many different options available to you in order to make sure that you can provide yourself with the security you need.
There can be many complicated things to think about when it comes to retirement planning and pensions. As a result of this it is recommended that you consider getting professional counsel when it comes to making big decisions about this area of your finances.
There are two main forms of pension - defined contribution pensions and defined benefit pensions.
Defined Benefit Pensions
This form of pension plan will pay out a fixed amount when you reach retirement. The amount that is paid out is usually defined by a percentage of your final salary. These pensions are set up by your employer and the majority of the money will be paid in by them, although you may be given the option to contribute if you so wish. If you are given this option by the company that currently employs you, then you should almost certainly take up the offer as they are generally the best choice.
Defined Contribution Pensions
These are rapidly turning into the most commonly found pension schemes. With this form of pension plan, you are required to pay in a predetermined amount each month, to which your employer will sometimes contribute. This sum will then be put into an investment by the pension fund. Once you reach retirement, you then purchase an annuity which will pay you out an income for the remainder of your life.
There are many tax advantages to paying money into a pension plan, this is because your contributions are tax free. This means that any basic level tax payer will receive £100 worth of investment for every £80 that they actually pay in. For those people who are paying the highest rate of tax, this is even more beneficial and means that for every £60 that they invest they will actually receive £100 worth of input.
One thing that you should definitely be sure to remember is the fact that you will not be able to take any money out of your pension once you have paid into it. This means that the money in there can only be used to pay for your pension once you have retired. Another thing that you should definitely bear in mind is the fact that there is no real telling how well your investment will do, so you can't one hundred percent certain about how much you will eventually receive out of the plan.