Types of Pensions
There are various different types of pensions available. You will find bellow a description on the most popular pensions.
A dormant or frozen pension is any company or personal pension scheme that you are no longer paying into, usually because you left the company.
Whilst these pension pots are not receiving any further payments from your ex-employer, they are still invested on your behalf in the stock markets and are still subject to fees, which come out of your pot every year.
Now something that many of you may not know is that many companies are actually charging their ex-employees more for their pensions, after they leave the company. This is known as an active member discount and can account for up to 0.05% per annum more in charges this is only one of the many hidden charges that a lot of pensioners are incurring.
Personal Pensions / Private Pensions
A personal pension is usually arranged by yourself, not your employer, and is a type of money purchase plan.
A personal or private pension is a tax-efficient savings plan that enables you to save for retirement. Your pension contributions attract tax relief (up to annual limits) and can be made in various ways, either regularly or by lump sum, or a combination of both.
On retirement, up to 25% of your pension fund value can be taken as a tax-free cash lump sum. The remainder of the funds left in your pension pot can then be used to buy an annuity (a guaranteed income for life in return for a lump sum investment) or left invested to produce an income directly from the fund. Alternatively, you could withdraw the whole fund as a taxable lump sum.
Company Pension / Workplace Pension Scheme
Final Salary Pension Scheme
Money Purchase Pension Plan
Self Invested Personal Pension (SIPP)
A stakeholder pension works in a similar way to other personal pensions whereby you pay money into your pension to build your pension fund. However, they must adhere to Government rules and minimum standards on annual management charges, access and terms to ensure they offer value for money, flexibility and security.
You can switch to a different pension provider without the provider you leave charging you.
You can start contributions from as little as £20, and pay weekly, monthly or at less regular intervals.
You can stop, re-start or change your contributions whenever you want – there are no penalty fees.
The scheme must be run by trustees or by an authorised stakeholder manager, whose responsibility will be to make sure that the scheme meets the various legal requirements.
A State Pension, also know as a Government Pension or Old Age Pension, is a pension that is accumulated during an individual's lifetime and paid by the Government when they reach state pension age.
A state pension value is based on the number of years of National Insurance (NI) contributions made throughout the person's working life.
Unit Linked Pension
Unitised with Profits Pension