What is the workplace pension? How does it work?

Nowadays, more and more people decide to start investing in their future by setting up a retirement plan. What does it mean? How is it possible to invest in one’s future?

Today the British Government offers the opportunity to get a pension trust, which is nothing more than a fund intended to collect money for when you stop working. The money in your pension pot will have one specific purpose: to grant you an income thanks to which you’ll be able to enjoy your future years and live according to your desires.

When starting to plan your future and opening a pension fund, you should always identify your long-term life and economic goals to transform them into a solid strategy. Today you have the chance to open a pension fund according to your specific job situation. As a matter of fact, the Government provides many different plans intended to meet the needs of as many workers as possible.

For instance, if you’re an employee, you can set up a workplace pension. It is specifically meant to put money aside counting on the contribution of your employer, who is required to deposit a fixed proportion of your salary every month to progressively build your pension pot. The pension provider will then invest your money to give the chance to grow over the time.

However, you should keep in mind that all investments are risky, and the performance of a potential wrong investment might lead to losses. All investments perform according to market’s volatility and swings, and you might get a lower figure than expected. Anyway, the workplace pension is not the only plan available for UK citizens. In fact, today you can also opt for a plan based on your contribution and a plan for self-employed workers, such as Moneyfarm private pension.

How do British pensions work?

Before delving into the features of the different British retirement plans, it is important to understand the basic rules that unite all the pensions’ schemes. For instance, you should know that the Government has fixed a specific retirement age, which refers to the date from which you can start withdrawing money from the pension pot. In fact, before then, it will not be possible to have access to your savings. But what is this rule for?

This is a way to help you avoid withdrawing your savings prematurely and at the same time to help you set aside a good amount that you can use to support yourself financially when you stop working. To be more precise and exhaustive, the retirement age is set at 55 for the workplace and private pension, and at 66 for the State pension. Moreover, another shared feature of the plans relies on the support of the Government, as it will contribute on your pension pot through tax relief.

Lastly, you should be aware that the pension provider will always invest your savings, and, as mentioned above, this could represent a way to make the money mature, but also a risk to end up with a lower figure than invested.

What are the other types of pensions available in the UK?

As previously stated, the workplace pension isn’t the only trust available in the UK. If you’re a freelancer you will find a plan specifically based on an independent worker’s needs. In fact, the private (or personal) pension has been designed to give the holder more freedom when it comes to choosing how much and how often to deposit. You can also opt for the State Pension, which is a plan based on your previous National Insurance contributions.

To get it you have to meet some requirements: you have to be born on or before 5 April 1953 if you’re a woman, or on or before 5 April 1951 if you’re a man born. If you turn out to be eligible, you’ll be provided with a pre-arranged sum as soon as you reach the pensionable age.