Pension Types Explained
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Pension Types Explained

A pension is simply a tax-efficient long-term savings plan that could make your retirement more comfortable.

There are many different pension types, so it can be helpful to fully understand each type of pension and how the pension you currently have could impact your future.

Poor financial performance could cost your pension the equivalent of seven years’ worth of pension income*. That’s money you could be losing for your retirement.

What you should know about today’s pension market

The private pension market can be a minefield – and recently there’s been a dizzying array of changes to pension tax relief. Pension reforms are constantly being put forward, and it’s only a matter of time before even more changes are made. It can be very hard to keep up.

But don’t worry, that’s where Pension Works comes in. We specialise in private pensions, and our no obligation Pension HealthCheck will make sure your pension is performing and is easy to understand. We believe that doing this will help secure the comfortable retirement you deserve.

Pension types explained

Defined Contribution Pensions

These are ‘Pot of Money' pensions where the benefits provided take into account the value of the fund at retirement. They can be personal pensions or Occupational Pensions. There are no guarantees as to what pension will be provided.  This will be a reflection of contributions made and investment growth. 

Defined Benefit Pensions

These offer the promise of a guaranteed pension at retirement which reflects the length of service with an employer. It will be based on either the Final Salary or Average Career Salary of the employee.  Providing the company is still in existence, there is no investment risk for the pension receiver. This type of pension is becoming less frequent.

Private Pensions

This is a generic term for pensions that are not workplace schemes.

Group Personal Pensions

Employer-sponsored schemes – each member has a personal pension plan, and their contract is with the pension provider.  The employer's role solely is to select the scheme provider, decide if there should be any restrictions on fund choices and take contributions from the employee's pay and forward them with employer contributions to the pension provider. 

Self-Employed Pensions

A private pension arrangement or personal pension is taken out by a sole-trader or self-employed worker.

SERPS Pensions

State Earnings Related Pension (formerly Graduated Pension and subsequently State 2nd Pension or S2P) was an additional element of State Pension for employees.  The amount of pension was linked to the employee's salary. SERPS was abolished in 2016 when the flat rate State Pension was introduced. 

Personal Pensions

Private pensions are contracts between the pension member and an insurance company or another pension provider.

SIPP Pensions

These are personal pensions where the member has a much wider choice of investments, including commercial property and single company shares.

Stakeholder Pensions

Personal Pensions with a set of rules that impose amongst other things a maximum annual management charge (AMC), low minimum contribution levels (£20 per month) and an appropriate Default fund.

FSAVC Pensions

Private pension linked to an employer's Defined Benefit Scheme but separate from the Scheme's internal Additional Voluntary Contribution (AVC) arrangement – largely defunct since the rules were eased several years ago, allowing people to contribute to both personal and employment schemes as they wish.

Money Purchase Pensions

This is another name for Defined Contribution Pensions.

What sets Pension Works apart

We'll evaluate your pension with no obligation

At Pension Works it’s our job to make sure that every client’s pension is working as hard as they do. Our no obligation Pension HealthCheck will evaluate your current policy in detail. If it's already performing, we will tell you that with no pressure or fee to pay.

We offer independent advice that's right for you

Our in-house Independent Financial Advisers scour the whole of the market including the biggest and most well-known providers to find the ideal pension for your requirements and will only recommend providers that are reputable and meet our strict criteria. You're not just another client to us; we look to build long-lasting relationships and grow your pension pot to ensure your retirement is as comfortable as possible.

We make pensions easy to understand

We aim to make pensions simple and easy to understand. Our Independent and impartial financial advisers will explain any queries you may have regarding your pension in everyday language, removing the financial jargon. We believe in being open and transparent with our clients and arming them with the right tools to make informed decisions.

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