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Types of Pension

Basic state retirement pension:
Most of us will get a basic State Pension. This is based on National Insurance contributions you have paid throughout your working life. The State Pension age is 65 for men and 60 for women.


SERPS (state earnings related pension scheme):
Between 1978 and 1988 all employees had to contribute to this additional state pension. After 1988 it became possible to opt out and in 2002 it was replaced by the state second pension. Serps was originally intended to provide an extra pension equivalent to 25 per cent of your earnings (within certain limits) during the 20 best years of your working life, but it was later reduced to 20 per cent of these earnings averaged over your whole working life. Contracting out ceased in April 2012.


State second pension:
The state second pension (S2P) replaced SERPS in April 2002; it is very similar to SERPS but provides more generous benefits to low earners.


Stakeholder pensions:
Introduced by the government in 2001 to make pensions cheaper and more accessible, stakeholder pensions can be taken out direct or through an employer. The minimum investment is £20 per month and there are no penalties for stopping contributions or transferring the fund to another pension company. Charges are capped at 1.5 per cent a year. The amount of pension you get will depend on the size of your pension fund and annuity rates when you retire.


Personal Pensions:

Provide a way for individuals to save for retirement, plans offered by pension providers generally offer a wide range of funds and investment strategies to accommodate most investors. These plans also offered a facility for funds to be received if an individual wished to contract out of the government schemes such as SERPS. Contracting out ceased in April 2012.


Self Invested Personal Pensions:
These are pension plans which enable investors to choose their own investments, typically from a range of insurance funds, unit trusts, investment trusts and shares. They can also be used to buy commercial property and various other investments.


Final salary occupational pension scheme:
Provided by an employer, this type of scheme (also referred to as a defined benefit scheme) promises a pension at retirement which is a fixed proportion of an employee’s salary. Employees must contribute but employers must pay the rest. For many companies the cost of these schemes has become too great in recent years and a large number of final salary schemes have closed down.


Money purchase occupational pension scheme:
A more common type of company pension scheme these days (also referred to as a defined contribution scheme) which is funded by fixed contributions from employees and employers. The amount of pension provided at retirement depends on the size of the employee’s ‘pot’ and annuity rates at the time


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