Choose Your Pension Wisely
Retirement planning is one of the most important decisions that every individual should make at an early age to enjoy comfortable retirement years. However, due to several factors, some people find it hard to invest in a retirement plan while trying to sustain their daily needs. Not being able to save for the retirement years has multiple disadvantages to retirees.
The main purpose of a pension is to provide a decent and comfortable standard of living to retirees during their retirement years. Aside from home and investments, a pension is another important way that would help individuals support their retirement. For this reason, it is important that individuals conduct a regular review of their pension plan to make sure that it grows at a reasonable rate.
Saving for retirement can be a challenging task for some people. However, pension can have great benefits for those who have managed their pension plan well. They can live comfortably without worrying the financial obligations that might arise upon retirement.
Pensions are divided into three categories: company schemes, personal pensions and state pensions. In a corporate pension plan, the company offers funding for the retirement of its employees. This pension plan usually involves regular contribution from both the employee and the company. Defined-contribution and defined-benefit pension plans are some of the most used corporate pension plans. The payout for the defined-contribution pension plan will solely depend on the success of the plan. On the other hand, for the defined-benefit pension plan, the retirement benefits of the employees usually depend on their salary history.
A personal pension scheme (PPS) is an individual investment scheme offered in United Kingdom. It primarily aims to develop a capital amount to give retirement or death benefits to employees. Meanwhile, state pensions are given by United Kingdom to women and men when they reach the age of 60 and 65, respectively. Since the amount of state pension cannot compensate all the living expenses, it is important that individuals have additional retirement income. Ideally, how much is my pension worth?
The amount of personal pension that individuals can receive will depend on the total amount of investments made in the scheme, the performance of the investment funds of the pension provider and the pension annuity rate. 25% of the personal pension can be taken on cash lump sum by the time a pensioner reaches the age of 55.
For state pension, the amount will depend on the National Insurance contributions of an individual. As of 2013, a single pension can amount to 107.45 pounds per week. An individual is entitled for a full state pension if he meets the qualifying years. Men should meet 44 qualifying years while women need to meet 39 qualifying years. Individuals can increase the amount of state pensions by making additional contribution to another state pension. On the other hand, an individual will receive lesser state pension if he is self-employed and not making contributions to the British National Insurance.
Pension comparison is important to have the perfect pension plan. When choosing pension schemes, it is important that individuals compare the tax efficiency, the freedom it gives for pension withdrawals and currency. It is also ideal to choose the type of pension that offers flexibility. Pension comparison will enable individuals to choose the type of pension plan that suits their needs and financial situation.
When choosing a personal pension, it would be best if individuals make pension comparisons from different pension providers. It is also important that they can afford the contribution of the chosen pension scheme. Another important thing to consider is the fees that they have to pay including transfer and administrative fees as well as penalties.
Another important pension advice is to check how the pension funds are going to be invested. It is also important to determine the type of choices that a pension provider will offer. The most important thing for an individual to do is to not sign any pension agreement until they are satisfied with the conditions and benefits it provides. When in doubt, it is advisable for them to seek the help of investment financial advisors as they have more knowledge and experience in terms of pension schemes and retirement planning. Some of these advisors are willing to offer free pension advice. They help individuals determine the amount of money they should invest in their chosen pension plan annually.
Pensions play a crucial role on how individuals will spend their retirement years. Depending on their choice of pension scheme, they can either live comfortably or uncomfortably. Choosing the right pension scheme and provider is one of the factors that will make a pension plan successful. Financial planning is one of the most important aspects of life that should be observed from the time an individual starts earning until their retirement years.