Worrying about a pension seems a long way off when you are young. But nowadays, it is so easy to contribute to a pension scheme, it makes sense to take a few minutes to take a look at setting up a personal pension. Basically, the earlier you begin contributing towards your pension, the more you have to retire on.
A pension is defined as the income that you will be receiving when you retire. Many people wrongly believe that they can rely on the state pension scheme to take care of them when they retire, but they will be in for a surprise. The basic state pension scheme is continually eroding and probably by the time you reach retirement age, you will be receiving a pittance. Not enough to live on. Because of this, it is important to establish a personal pension scheme to ensure your future income.
In the UK, there are three main types of private pension scheme: occupational pension schemes, personal pension schemes and stakeholder pension schemes.
The company you work for probably has their own pension scheme; this is known as an occupational pension scheme. It makes sense for every employee to join such a pension scheme, when offered by the employer. Your contributions, which are normally deducted directly from your pay packet to the pension scheme, will be tax-free and in most cases, the company will match the contributions you make to the scheme. This will allow your money to grow faster.
Personal pension schemes is a general term that covers pension schemes that are not occupational pension schemes. These are provided and managed by a range of providers, such as banks, life assurance companies, building societies, trade unions and unit trusts, just to mention a few. It is up to you to decide which type of pension to set up and with which institution.
Stakeholder pension schemes generally fall generally into the personal pension section by definition. They were introduced in 2001 and are basically very cost effective pension schemes. They have very low minimum contribution amounts, carry low costs and are not allowed to charge more than 1% of the fund value for administrative costs.