The majority of employers allow staff to sign up to workplace pension schemes. In fact, this will be a legal requirement by 2018. These schemes take several different forms, and they all work in their own unique way. The Pension Regulator (TPR) regulates these schemes in the UK.
Benefit schemes offer specified benefits upon retirement. These benefits depend on your wages and service. Career Averaged Revalued Earnings (CARE) and Final Salary schemes are two such examples of this type of scheme.
Defined Contribution Schemes
These schemes offer numerous retirement benefits. These benefits depend on how your selected investments perform, and the amount you pay in. Group personal pensions, money purchase, self invested group personal pensions, and group stakeholder pensions are all examples of this type of scheme.
Contract Pension Schemes
The employers of those with workplace contract schemes will assign a pension provider to operate the scheme. Typically, this will be an insurance firm. Additionally, there is an agreement between the provider and the employee. In most cases, the employer will make a pledge to add funds to the scheme on a monthly basis.
Pros and Cons of Contract Pension Schemes
Employers do not have authority as trustees, because the pension provider deals with this. Consequently, employers have extra time to run their business. All employers have to do is pay the contributions on the agreed date. However, employees tend to communicate primarily with the pension provider, so the relationship they have with their employer is not as close as it is in other types of schemes.
Additional Benefits Linked to Pensions
You might qualify for extra benefits under your pension plan. Therefore, it is wise to study any details that your employer or pension provider send you. This way, you will know your entitlements.
Annuities in Focus
You might believe that, upon retirement, your pension provider will begin paying you your pension. However, in reality, this does not happen. Firstly, you will have to access the cash you have accumulated in your pension pot, and invest this in an annuity. Annuities are financial products that guarantee to give you a retirement income. If you have a SIPP (Self Invested Personal Pension) or a stakeholder pension, you will have to purchase an annuity.
An Overview of Annuities
You receive a recurring income calculated yearly. This might be a fixed or variable amount, based on the kind of annuity selected. Lifetime annuities are the most basic category. These will pay you a guaranteed income, until your death. These annuities can be customised to your specific requirements.
Selecting a Provider
You could purchase an annuity from the firm you used for your pension scheme. Nonetheless, this is not compulsory. Legally, you are entitled to purchase your annuity from the provider of your choice, irrespective of your pension arrangements. Therefore, always research what your current provider offers, and compare this with some other companies. This way, you will get the best possible deal. Several financial providers and insurance firms sell retirement products, like annuities.
Returns on Annuities
The income you receive from an annuity will depend on the specific rate you are offered, and the kind of annuity you select. Annuity rates are fixed, once customers take them out. Your rate will not decrease, once your retirement starts. Notwithstanding, should general annuity rates increase in future, your rate will not rise from its’ original level.
The Wealth of UK Pensioners
Recently, Prudential reported that over a million UK pensioner households have wealth in excess of one million pounds. This study puts the increase in millionaire pensioners down to the fact that average values of pension assets have risen. Also, the value of pensioner real estate assets have risen, as have the value of other monetary assets owned by retired households.
How the Other Half Lives
Nonetheless, the research from Prudential paints a different picture for those who fall outside of the higher income bracket. Twelve percent of pensioner homes are worth under forty thousand pounds, which is a bigger percentage than the number of homes that are worth over a million pounds. Furthermore, the research highlights that 12.5 percent of retired households have net investments and savings worth under five hundred pounds.