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What is a pension fund? Which Type Should You Choose?

—TechRound does not endorse or recommend any financial investment or opportunity. All article and website content is purely informative—

A pension fund is a special type of savings plan designed specifically to help you save money for your future and attempt to provide an income that you can live on when you are no longer working. Today, opening a retirement fund essentially means starting to invest in your future by putting money aside each month.

In the UK, citizens have a wide range of types of retirement provision available to accommodate as many people as possible. Let’s dig deeper into this matter.

How do pensions work in the UK?

As mentioned above, UK citizens have the option to choose between three different types of pension schemes, each tailored to the needs of specific groups of people. This allows any UK citizen to assess what type of system is best suited to their working and working conditions economic situation and choose the right one. Although each currently available scheme has its own characteristics, they all have some points in common.

In fact, each retirement plan is designed to offer tax and contribution benefits so you can find the best way to save money and build a solid financial future. When you put your savings into a retirement fund, you are essentially investing them. This gives your capital a chance to grow over time. However, never forget the risk associated with any type of investment: your money will only grow or shrink as the market fluctuates.

Finally, a date has been set when you will finally be able to access your funds. In the UK this date is currently set at age 55 for all pension schemes except the State Pension. When will you get your state pension then? Let’s take a look at the different types of retirement plans currently available and their respective retirement ages.

What are the main types of pensions in the UK?

The first type of retirement plan in the UK, which is also the most common, is the employer-funded pension, which can also be referred to as an occupational or company pension. It is a pension scheme into which your employer contributes monthly to help you build up your pension fund.

Indeed, in modern times, all British employers are required to contribute to their employees’ pension schemes. In this case, too, the state makes its contribution by applying tax breaks. This type of retirement provision can be divided into two categories: if you opt for defined contribution retirement provision, both you and your boss pay into your pension fund. The paid-in money is then invested by the pension insurance institution.

On the contrary, if you opt for a defined benefit pension plan, you will have access to a predetermined amount once you reach retirement age. The second type of retirement fund is known as a personal pension or private pension. This scheme gives you more control over the amount you can deposit each month. It is indeed a really good choice for self-employed people too. Investors can access their money for both company and private pensions when they are 55 years old.

Finally, there is the statutory pension, which is designed to give you your money once you reach retirement age, which in this case is set at 66. To be entitled to this pension, you must have at least ten years of contributions. In fact, this system bases its monthly payments on your contributions.

—TechRound does not endorse or recommend any financial investment or opportunity. All article and website content is purely informative—

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Fry Electronics Team

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