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Pensions

Pensions are something that we need to start thinking about as early as possible especially being as State Pensions may not provide as much as we would need to live comfortably. However, many of us choose not to start planning for our retirement for various reasons such as we don't want to think that far ahead, it all seems to be a bit too complicated and we don't know which pension companies are the best so we have put together some pensions advice to help you start planning for your retirement.

Here at Prudent Minds we have decided to put together a guide to what to expect and what to look for in a pension.

Final Salary Pension Scheme

Sometimes referred to as Occupational, Employer Pensions or Defined Pension Scheme. They are becoming few and far between and a number of companies have either ceased their Final Salary Pension Schemes or have stopped taking on new members. The reasons blamed for this change is the drop in interest rates, increase in life expectancy and falling stock markets. It is predicted that in 10 years the Final Salary Pension Scheme will be no longer in existence in the private sector, meaning that no new contributions will be made, though people who have been included in the scheme in the past will still be eligible to receive the benefits from before the scheme was stopped. In the public sector it is suspected that even these schemes will have had to move to a money purchase type pension as otherwise they could end up with having to provide more money to members than the funds have earned.

Defined Contribution Plans

Also know as Money Purchase Schemes and the easiest way to explain this type of scheme is to say that the benefits of the scheme are detailed by the schemes rules. Quite often this is also a contribution scheme where employees pay a contribution around the 5% of their salary, but the responsibility of the plan and benefits are still that of the employer.

Stakeholder Pensions

Are a pension which can be provided by financial companies such as Banks, Building Societies and Insurance Providers and many people set up stakeholder pensions as their own personal pension. Pension providers must ensure that their Stakeholder Pensions meet set standards including Value For Money, and Management Charges should not exceed 1.5% if the pension is taken out before 6th April 2005. Once 10 years have passed if you remain a member of that scheme then the Management Fee will not be able to exceed 1%.

Retirement Pension or Superannuation Plans

Are often set up by an employer as a way of providing income to employees after they have retired. They became quite popular in the US around 1940 as due to the conflict at the time, wage increases were not allowed. This provided a way for companies to give back to their employees in another form other than a pay rise.

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