A pension is a tax-efficient way to save for retirement and give you a source of income in the future. There are different types of UK pension schemes, and each works differently. Examples include state pension schemes and private pension plans. The former provide limited financial support while private pension schemes allow you to build a larger fund for retirement. Read on to learn more about the different types of pensions.
Otherwise known as occupational pensions these are set up by employers to provide retirement benefits. It allows employees to accumulate a pension fund using contributions based on a salary percentage. The employer is required to match your contributions.
Self-invested personal pension
This is a personal pension plan that allows you the freedom to control and manage your investment decisions. You can purchase a variety of assets including stocks and shares.
Additional voluntary contribution
Members of occupational pension schemes can make payments above the usual level of contributions. These are known as additional voluntary contributions and provide additional pension benefits.
This pension is arranged by you and usually attracts a tax relief (up to annual limits). Up to 25% of your retirement qualifies as a tax-free cash lump sum when you retire. The remainder of the pension can be invested to produce an income directly from the fund or used to purchase an annuity. You can also withdraw the entire fund. In this case, it is considered a taxable lump sum.
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