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Defined Contribution Pension
Similar to a personal pension defined contribution pension you build up a pot of money that you can then use to provide an income in retirement. The income you get from a defined contribution scheme depends on factors including the amount you and/or your employer pay in, the fund’s investment performance and the choices you make at retirement.
If you’re are enrolled in the scheme through your workplace, then your employer usually deducts your contributions from your salary before it is taxed.
The fund is usually invested in stocks and shares, along with other investments, with the aim of growing it over the years before you retire.
It’s important to remember that the value of investments can go up or down.
Other types of defined contribution pensions
Group Personal Pension (GPPs)
GPPs are a type of defined contribution pension which employers sometimes offer their workers.
As with other types of defined contribution scheme, members in a GPP build up a personal pension pot, which they can then convert into an income at retirement.
The main difference between a group personal pension is that the scheme is run by a pension provider that your employer chooses, but your pension is an individual contract between you and the provider.
The provider claims tax relief at the basic rate on your contributions and adds it to your fund. If you’re a higher or additional-rate taxpayer, you’ll need to claim the additional rebate through your tax return. Your pension pot builds up using your contributions, any contributions your employer makes, investment returns and tax relief.
Stakeholder pensions have low and flexible minimum contributions, capped charges and a default investment strategy if you don’t want too much choice. Some employers offer them, but you can also open one yourself.
Stakeholder pensions have to meet minimum standards set by the government.
- Limited charges.
- Charge-free transfers.
- Flexible contributions.
- Low minimum contributions.
- A default investment fund
Retirement planning & wealth management
Using your Personal Pension Pot
Pension Freedom, introduced in April 2015, means that once you reach 55 and have a personal pension or workplace pension (defined contribution scheme), you are free to use your pension how you like. You are now free to tailor when and how you use your pension to fit with your planned retirement.
There’s a lot to weigh up when working out which option or combination is best for you. It’s essential to seek advice when planning your pension to ensure you don’t run out of money.
Flexible Access Drawdown
It provides you with a regular income until a set time or until you die.
With an annuity, you can still withdraw up to 25% of your pot as a tax-free lump sum, then with the remainder buy an annuity.
An annuity gives you a guaranteed taxable income for life, the amount you get depends on the size of your pot and current annuity rates.
There are different lifetime annuity options and features to choose from that affect how much income you would get.
Self-invested personal pensions
A Self-invested personal pension (SIPP) is a form of personal pension that allows you to manage your own investments. Pension freedoms mean you can now access and use your pension pot from the age of 55.
Most SIPP's allow you to invest your money into a range of different assets. SIPP's aren't recommended for everyone, and it's essential you receive advice before thinking about this type of personal pension.