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Your retirement is probably the biggest thing you’ll ever have to save money for. That’s why it’s important to compare your options and choose a type of pension plan that supports your goals and appetite for investment risk. They all have their own benefits, risks and features to think about too.
Our quick and clear guide breaks down a few pension plans to help you better understand each type and to help you decide what’s right for you.
Aside from the State Pension, there are two main types of pension plan to choose from, known as Defined Contribution and Defined Benefit (also known as final salary or career average).
In short, Defined Contribution pension plans will pay out based on how much money has been paid into the pot throughout your life, investment growth over time, charges paid and how you choose to take your money at retirement.
Alternatively, Defined Benefit pension plans will pay out depending on your salary and the number of years you’ve been working for your employer and the terms of the scheme that you're in.
Sometimes known as ‘money purchase,’ this is a common type of pension plan. You can open a Defined Contribution pension plan on your own – sometimes called a personal pension plan - then start paying into it with the aim of building up a pot for later life. The money you pay in will be invested, which can give it an opportunity to potentially grow.
You might also get a Defined Contribution pension plan set up automatically through auto-enrolment with your employer – sometimes referred to as a workplace pension plan.
Here’s a closer look at what you need to know about various types of Defined Contribution pension plan:
Also known as a SIPP, this type of Defined Contribution pension plan gives you more flexible investment options and can either be opened individually or for you through an employer. For example, the Standard Life SIPP gives you a wide range of investment options from Standard Life and other providers.
This type of plan is for anyone who wants to manage their own investments and wants a broader range of asset types to invest in. It’s worth keeping in mind that some investment options will only be available through a financial adviser.
Here’s a quick overview of what a SIPP is and how it works:
Get more details about our SIPP, find out how to apply, browse funds or look at charges and terms here:
This is another type of Defined Contribution pension plan that can be opened yourself or on your behalf by an employer. Stakeholder pension plans are aimed at people who want to save for retirement, but who have less to put away each month. For example, Stakeholder Pensions let you make minimum payments of £16, and you’ll still get tax relief from HMRC to boost your savings.
Here’s a quick overview of how stakeholder pension plans work:
You can find out more about features and details of the Standard Life Stakeholder Pension below. You can browse the funds you can invest in, see charges and more.
Tax relief can work differently with different types of pension plans. With some types of workplace Defined Contribution pension plans, payments are taken from your after tax earnings and you get basic rate tax relief, as described earlier - with other types, payments are deducted from your earnings before income tax is calculated. This means you get your basic tax benefit immediately and higher or additional rate taxpayers don’t need to manually reclaim tax relief from HMRC.
Check with your employer if you’re unsure about which type of workplace pension plan you have.
Commonly known as ‘Final Salary,’ this is a type of workplace pension plan. Defined Benefit pension plans are different from other schemes, as they pay out a specific, secure income for life when you come to take your pension money.
Here’s a quick overview of how Defined Benefit Pensions work:
This is just a quick overview of how defined benefit pensions work. For even more information, please visit the Money Advice Service guide to workplace pensions .
The State Pension is a retirement income paid every four weeks to you by the government once you reach the UK State Pension age. Not everyone is eligible for the full State Pension, so it’s important to know what your personal position is.
You can get a State Pension statement that can show what your entitlement is likely to be. Visit the Government website to see how much you could get.
We have a detailed guide to understanding your State Pension. It’s full of helpful information about how much you could get a week, what the State Pension age is and how to qualify for payments when you reach state retirement age.
Interested in getting a Defined Contribution pension plan with us? You can find out a bit more about your options and apply here.
If you already have a Standard Life pension plan, you can see how much is it worth and manage your plan here.
We want to help you get the most out of your pension plan. We have guides, tools, articles and more to help you understand how pensions work and how to keep your savings on track.