Overview of Workplace Pensions
Whether you know them as company, work based, occupational or workplace pensions, these are retirement saving schemes that are arranged in house by your employer. They are put together from a percentage of your pay each payday, which in most cases will be topped up by your employer.
Thanks to a new law, you’ll now be automatically enrolled in a scheme if you work in the UK, are aged between 22 and the current state pension age, and you earn more than £10,000 a year. The government also offers tax relief on workplace pensions.
There are different types of schemes, so the benefits and/or amount you get, and how you can take the money when you retire, will vary, although a percentage is usually tax free, with income tax due on the rest.
10,000 householders in the UK were recently surveyed, and 41% of those considered workplace pensions the safest way of saving for retirement. The survey results were reported by TheActuary in November 2015, and back up other material about the pension schemes and their benefits. Key points reported include the rules that regulate workplace pensions, and the fact your pension is protected whichever type of scheme your employer enrols you in.
Example – A defined contribution scheme is managed by a pension provider, so you are protected if your employer goes bust and won’t lose your pension fund. Compensation is also available if the pension provider goes bust, as long at the provider was authorised by an organisation called the Financial Conduct Authority. Compensation is sourced from the Financial Services Compensation Scheme.
To find out more about the different types of schemes, how they operate, and anything that might affect your pension pot when you retire, consider speaking to your employer, pension provider, or seek workplace pension advice from an experienced consultant. Business owners can also find advice here.
Risks of Other Types of Investments
Although you have quite a few options open to you when it comes to saving for your retirement, some investments are far more volatile than employer pension schemes, so it’s always worth seeking advice and weighing up your options.
Property is often top of investment wish lists, but the property market as a whole can go up and down, both in terms of prices and demand for rentals. This makes property more of a long term investment, so you should be willing to cope with the losses and wait for the profits. It’s also a risk if you over-invest, and tie up a lot of money in the buy-to-let market – this could mean difficult times when the markets do slow.
Other factors that come into play include the time and money involved in managing property, the fact a lot is invested in a single item rather than a portfolio, and the costs involved in buying and selling. It’s also worth researching the additional risks if you are using a mortgage to buy property.
Gary Keeley founded The Workplace Pension Consultancy, which provides auto-enrolment advice for businesses that are setting up staff pension plans.