A pension is a tax efficient scheme for you to save for your retirement. It is a long term investment to help you to have enough income in retirement. The government encourages you to save for retirement. You get tax relief on your pension contributions.
The sooner you start saving for your retirement the more secure your future may be. You need to make your own plans to make sure you are comfortable when you retire. The government helps with a State pension. Find out what the State pension provides on the GOV.UK website.
Types of company pension schemes
Company pension schemes are also known as occupational pension schemes. They vary from company to company. There are 2 general types of company pension schemes:
- Salary related scheme
Your pension amount is based on your salary and the number of years you have been in the scheme. Also known as a Defined Benefit (DB) scheme - Money purchase scheme
Your contributions are invested to make a pension pot for you. Your pension pot is used to provide a regular retirement income. This is usually through buying an annuity. This is a type of retirement income product. Your pension amount depends on how much you pay into the scheme and how well the money was invested. Also known as a Defined Contribution (DC) scheme
The Local Government Pension Scheme (LGPS) is a salary related scheme. You and your employer pay contributions.
In 2022, a new type of pension scheme was launched called a Collective Defined Contribution (CDC) scheme. It provides an alternative to the 2 primary pension scheme models.