A pension scheme is a saving plan that helps one to save their money for later life. Pension schemes help people to be able to save some money for when they are older.
Pension schemes usually involve one saving a little cash while they are still working so that they will have some savings when they retire or decide to work less.
Types of workplace pension
A workplace pension is a type of pension that is like a retirement plan which is usually arranged by the employer. This type of pension is also known as occupational, work-based, or company pension scheme. There are three types of workplace pensions that is;
I. A defined benefit pension scheme
II. A defined contribution pension scheme
III. Cash balance plan
Pension schemes can either be arranged by the employer or an individual. You can also save in various other schemes apart from the pension scheme or even in tax-efficient saving plans such as ISAs.
Saving into a pension scheme has various advantages such as one can enjoy a tax-free sum of cash, and also they can receive a regular income, thus raising their financial security even at an older age. This form of saving also has a favourable tax treatment as opposed to other forms of saving.
Difference between pension scheme and state pension
Pension scheme enables one to increase their income in addition to the state pension. On the other hand, state pension only contributes up to £168.60 per week. It also provides one with some additional protected payments. Pension scheme, therefore, tends to allow one to get more savings income as compared to the state pension.
How to determine the amount of money one gets from various pension schemes
The amount of money that one can get from various pension schemes tend to differ. For example, if one has a defined benefit pension scheme, then they are likely to receive a specified amount of income.
The income depends on different factors such as the years of pensionable service and the final pensionable salary.
When is it late to start saving for a pension?
There are always benefits by saving into a pension plan regardless of how old a person is especially when their employer can contribute to the pension. Saving into a pension is a tax-efficient way into saving on cash. One is also able to save the money as a cash lump sum.
What happens when one dies without taking their pension benefits?
Are you ready to invest in a pension scheme? In most scenarios, the pension scheme usually provides benefits to the death of the applicants.
In other cases, if the applicant had a defined benefit pension scheme, a payable income may be provided to they’re dependent.
On the other hand, if the person died while still an active member of the pension scheme, there is a lump sum payment which is given to their dependents.
This lump sum is usually a multiple of their pensionable salary. It is important to consult your scheme administrator to check what type of death benefits they scheme offers. It is also important to carefully select the type of pension to maximise your income and benefits.