Pensions Explained

There are several different types of pensions available to people with a variety of financial circumstances. These are explained below to try and give you an idea of which pension may be most suitable for you.

State Pension

Whilst we can’t make any recommendations regarding your state pension, this is still an important area of retirement planning. The modest amount of pension you can receive from the government highlights any income shortfall you may encounter in retirement.

For most people there is a basic state pension of £113.10 per week for a single person and £226.20 per week per couple for the 2014/15 Tax Year. In most circumstances, this alone is not sufficient to provide a comfortable retirement income. 

Occupational Pension

You may be part of an occupational pension scheme in relation to your current employment, but you might not know exactly how the scheme works.

Salary Related Scheme
This is where your retirement benefits depend upon the number of years you have worked for your employer and your final salary shortly before leaving employment and/or retiring.
It provides a pension based on these factors and can also be known as a ‘Defined Benefit Scheme’ . 

Money Purchase Scheme
This is where your contributions are invested to build up a pension fund and is sometimes referred to as ‘defined contribution scheme’. Your retirement benefits depend on the amount you and your employer have paid in, how well the investment funds perform and annuity rates when you retire.

Self-Invested Personal Pension (SIPP)

A SIPP is designed to offer a lump sum and an income in retirement. They are available through investment platforms and allow you to invest contributions into a wide range of investment funds. This allows you, along with our expert guidance, to tailor an investment portfolio and strategy that is aligned to your personal ‘attitude to risk’ and allows you to maximise investment returns right up until retirement.

Stakeholder Pension

Stakeholder Pensions are a type of Personal Pension. They were introduced by the Government in 2001 as an easier and cheaper way for people to save for their retirement.

They are available through insurance companies who offer their own range of funds which your contributions can be invested into. Although there are less fund choices available through these than with a SIPP, there is still provision to create a portfolio of funds which are in line with your ‘attitude to risk’. 

Contributions can be from as little as £20 per month, with tax relief on contributions available at your highest rate. 

At retirement you are able to take 25% of the fund value as a tax-free cash lump sum.

Annuities

When you retire, you need to convert your Pension fund into an income for the rest of your life and this is typically achieved by purchasing an Annuity.

Annuities are available through insurance companies and offer you a fixed income from the day you retire. You have the option to ‘inflation proof’ your income by choosing an Annuity that will increase in value each year in line with inflation.

If you suffer from poor health at retirement, enhanced Annuity rates may be available.

For more information about the different types of pension available to you, please download our free guide.

   

I had no idea until taking independent advice from Cockburn Lucas that my retirement options covered so many areas, and am really grateful for the professional and clear way in which these options have been explained. As you can imagine, the decision on how to take my pension was something I couldn’t afford to get wrong or take chances with, so I am grateful for all the help and expertise they have provided in dealing with my need for advice.

- Tom Scothorne, Private Client