SJP Types of pension
There are many different types of pension that you might come across, but the majority typically fall into one of two themes; Defined Contribution (DC), or Defined Benefit (DB). It’s worth understanding the basics of how these work, as it will have an impact on the options available to you, as well as how you plan to access your retirement benefits when you are ready to retire.
The differences are explained in more detail below.
The value of a pension with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
Defined Benefit pension
DB pensions are becoming increasingly rare, but they offer valuable benefits for those in the scheme.
They are schemes that run through an employer, where you accrue benefits based on your earnings, length of service and membership in the scheme.
They offer a guaranteed income for life, and usually the option of a tax free cash lump sum. The age at which you can take benefits is set by the scheme and is typically 60 or 65.
The basis on which the benefits are paid might not have the flexibility you are looking for, or fit with your current retirement plans, such as the age at which you want to retire.
Defined Contribution pension
A DC pension is based on contributions set up by you, or through your employer. They work by paying a known amount of money into a pension, typically monthly, by you or possibly your employer, or both (if applicable).
The pension plan is usually run by a separate pension company, and your contributions are invested into funds (often a collective of equities) that will hopefully grow over time, ready for your retirement.
The amount of pension capital that you eventually have for retirement will depend on how much you’ve paid in, how your pension funds have performed, and any charges applied.
Your pension contributions will receive tax relief from the government (see ‘How does tax relief work?’), which adds a boost to your retirement savings. DC pensions offer a great deal of flexibility once you are eligible to access your savings, but they don’t come with any guarantees.
The value of a pension with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief is dependent on individual circumstances.
Self-Invested Personal Pension
A Self-Invested Personal Pension (often known as a SIPP), is a Defined Contribution pension, that gives you a wide range of investment choices.
They usually offer many hundreds or even thousands of different funds to invest in, as well as the ability to hold individual stocks and shares, as well as other assets. Many providers also offer ready made portfolios of funds.
SIPPs can provide a modern, and flexible way of saving for retirement, but you should take advice in order to understand if it is right for you, especially when comparing charges, and which funds meet your views on risk.
SIPPs will not be suitable for everybody and tend to have higher costs than a standard pension. Generally only those who are fairly experienced at actively managing their investment should consider this type of investment.
The value of a SIPP can fall as well as rise. You may get back less than the amount invested.
Pensions if you are Self-employed
Being self-employed means that you cannot join occupational pension schemes, although you will receive the State Pension subject to a sufficient National Insurance record.
This means it is essential to make plans for contributing to an individual arrangement in order increase your financial security in retirement.
The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
Other types of pensions
State Pension
The State Pension is a regular payment you can get from the government once you reach your State Pension age.
Under the new single tier State Pension you need 35 years’ National Insurance credits to qualify for the full amount. This is five years more than the old basic State Pension.
Workplace Pension
A ‘workplace pension’ is a Defined Contribution pension plan that is set up through your employer. Although you can set up your own pension, many people start their pension savings through a scheme offered by their employer.
These are often known as ‘workplace' or 'company pensions', and your employer will automatically enrol you in their scheme, unless you choose to opt out. You should think carefully if you are considering opting out, especially if you don’t have any pension savings.
Not only does being auto enrolled into your workplace pension get you used to saving over the longer term, but your employer will usually take care of much of the administration for you as well.
In addition, your employer will pay into your pension alongside your contributions and may even pay in higher amounts if you contribute more. It is worth asking for details of this from your employer, as this varies depending on each employer’s offering.
You might accumulate several workplace pensions through several different employers as you move through your career. So, it’s wise to regularly check that your pensions are doing as well as you expected, and make sure your investments are still appropriate.
Your workplace pension will work the same way as a personal pension, so you can access your savings from age 55 (rising to 57 in 2028) to take tax free cash, create an income, or withdraw some or all of it.
If you’re not sure about joining your workplace pension, then it’s best to speak to your St. James’s Place Partner first.
Please note that the above is intended to provide information only on the different pensions available and is not intended as personal advice.
The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.
Auto-Enrolment products are not regulated by the Financial Conduct Authority.
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