Are You Confused About Your Pension?

It’s not surprising most people are confused about what type of pension they have. Pensions come in many different types and names.

For example if you are perhaps a policeman, a teacher, a nurse, a university worker or a council worker you may be in what is known as a final salary or a defined benefit scheme. Now what this does is it defines a benefit that is payable to you on your retirement age. The benefit of this type of scheme is that it guarantees you an income that is defined by the scheme on a certain date.  This means there is no risk to you as the scheme accepts the risk on your behalf and paid you an income that typically increases with inflation until the day you die.

Upon death the members death, typically there is a 50% of the full pension passed on to your husband, wife or civil partner. This means 50% goes on death of pension holder and then 50% goes on death of spouse…..meaning the income stops and the family doesn’t inherit any further income on second death.

An alternative pension to this is a defined contribution pension scheme.  The name “defined contribution” states exactly what happens here, you defined a contribution that is paid to your pension by you or your employer if applicable. This is different to the defined benefit where there was a guaranteed income – there is no guaranteed income on a defined contribution scheme only ongoing contributions into an investment that potentially and hopefully will grow over time to achieve a sum of money of which you will either purchase an annuity when you come to retire or enter into a drawdown agreement which allows you flexible access to your money.

Your pension may have lots of different names attached to it perhaps based on the employment schemes you were in. You will typically find more often than not they will either fall under one of the above.

Understanding them in more detail once you have this information is perhaps more complicated but I guess that’s what keeps people like myself and a job to help explain how both or either of them can work for you.

For more information, get in touch.

Strategic Wealth Solutions LTD  is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the Group’s wealth management products and services, more details of which are set out on the Group’s website