Beginners' guide to pensions and retirement

Types of Occupational Scheme :

Final Salary schemes (also called ‘defined benefit schemes’): These link your retirement income to your wages and your employment history. They can pay a retirement income equivalent to up to two thirds of your final salary. If your company offers one of these and you’re eligible to join – many are now closed – it may well be in your best interest to do so.

Money Purchase schemes (also called ‘defined contribution schemes’): With this type of pension, the size of your retirement income is linked to how much money has been paid into your pension pot, and the investment growth achieved. Companies may either run the scheme as an occupational scheme or a group personal pension – often depending on the size of the firm.

 

Stakeholder Pensions

If your employer has five or more employees, and does not offer access to one of the above types of scheme, you must as a minimum be offered access to a Stakeholder pension.

Stakeholder Pensions must meet a number of Government requirements.

These are:

• A low minimum investment – as little as £20
• Charges capped at 1.5% of the fund each year for the first 10 years, 1% a year thereafter, and
• The flexibility to stop, start and change contributions without penalty.