Pensions and auto enrolment, everything you need to know.
Retirement is seen by many as the point in your life where you can finally stop working and have a lot more free time to do the things you love to do. Obviously though, you will still need to pay your way in life, even after you stop earning money through employment.
This is where pensions come in. If you spend your working life paying into a pension, you can then access this once you retire in monthly payments, not dissimilar to getting paid when you were working. The amount you get each month is dependent on how much you paid into it before retiring, as well as the type of pension scheme you’re on.
Generally speaking, there are three main types of pension:
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The State Pension:
This is the most common form of pension, paid for by the government and rising alongside inflation rates every year. A state pension is built up via national insurance contributions that you have made in your working life.
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Defined benefit pensions:
A defined benefit pension is usually associated with those who work in the public sector. This pension is salary related and the amount of pension you receive is based on how long you’ve been a part of the scheme and how much you earn. Typically, employers no longer offer Defined Benefit pensions and there are much stricter regulations surrounding existing plans.
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Defined contribution pensions:
With a defined contribution pension scheme, you build up a pension pot with which you can draw an income from when you cut down working or stop entirely. You need to be at least 55 years of age before you can start to take money out. With this type of pension scheme, you can usually withdraw at least 25% of your pot tax-free.
If you are currently employed, the chances are you are enrolled on a pension scheme. After all, it is a requirement under most circumstances for your employer to auto-enrol you when you start working for them.
The auto-enrolment pension scheme has been in place since October 2012. While employers are legally required to enrol their staff on a pension scheme, this isn’t necessary in a few situations. For example, if your employer pays you less than £10,000 a year (Legally you will only be paid less than this if you are working part time or if you’re on an apprenticeship), you are under the age of 22, or if you are above retirement age already. In every other scenario, your employer will be legally required to auto-enrol you on a pension scheme. This means that you’re guaranteed to be saving some money towards your pension for as long as you’re employed.
You are able to opt out of this if you want to. The main reason for this would be to find a pension scheme that benefited you better than the one you were auto enrolled on.
If you want to find out more about all things pension related, or perhaps want to find out which pension scheme is best for you, then get in touch with us here at Chilvester Financial. Our experts will give you just the pension advice you need, so contact us today for your free, no obligation-consultation!