11 pensions per employee, are you keeping track?
Far from working for one employer from leaving school to retiring, research suggests that the average person in the UK will now have around 11 jobs across their working life; in fact over 25% of the population have over 14 and the number is continuing to rise.
Since the introduction of mandatory employee pensions in 2008, employers have been legally obliged to offer a pension to all employees. While these schemes are transferable, many choose to simply switch to their new employers preferred provider when they switch roles. This can leave a number of funds dormant and forgotten thanks to lost details, or the memory of having set one up in the first place among the busy period of switching jobs.
While free organisations, such as the Pensions Tracing Scheme, can help to recover missing investments, it is believed such forgotten pots total around £400 million in a combination of workplace schemes and private pensions.
Defined benefit v defined contribution
While there are many kinds of pensions, most employee pension are either defined benefit, final-salary schemes run through an employer that pays out a guaranteed income in retirement usually rising with inflation and with cash lump sums available, or defined contribution, a pot of money built up with a range of options that individuals can pick from upon turning 55.
Why choose a defined benefit pension?
A defined benefit pension can generally be withdrawn between the ages of 60 and 65, and the amount is based on earnings and the number of years you have contributed. While such schemes do not offer a lot in the way of flexibility, they do leave recipients with a guaranteed income for life and are therefore a popular option with employees.
However, because of the expense to employers of such schemes, they are dwindling in availability, with the majority of employers not offering defined contribution options instead.
Why choose a defined contribution pension?
Unlike defined benefit schemes, defined contribution pension options are often overseen by an external provider and sees pension contributions invested into a number of different schemes. The amount employees contribute into these pensions are often matched by employers up to a certain amount. The amount contained within this pension at retirement is based on the money paid in, the performance of the investments, and any charges from the provider. Tax relief is also paid on such contributions, depending on the rate of income tax you pay.
While this offers flexibility, there are no guarantees when it comes to how your investments will perform or the size of your pension pot at retirement. Whichever pension you have with each employer, ensuring you keep an accurate track of your pots with each job move will, quite literally, pay off come retirement.
This was posted in Bdaily's Members' News section by PSG Wealth Management Ltd .
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