Different pension types explained

Can you help explain the different types of pension please? I’ve never had a pension before and I’m a bit confused about how my new employer’s pension scheme works.

Mike Freer, business development manager, BWCI, for business panel (31369766)
Mike Freer, business development manager, BWCI, for business panel (31369766)

Mike Freer, of BWCI, replies:

AS it is a new job, it is likely that your employer is offering membership of a defined contribution pension scheme.

This operates in a similar way to a savings account. Your employer will pay a percentage of your salary into the scheme each month.

You may also need to pay in something, depending on how the scheme has been structured. These contributions are invested and the funds will build up until you reach retirement.

Once you get to retirement, you can take part of these funds as a tax-free lump sum (normally 30% of the total). The rest is then used to provide an income in retirement. You can also choose to use part of the fund at retirement to provide a pension for a financial dependant, such as a spouse or partner.

A company pension scheme will also normally provide a lump sum if you were to die in service before retirement. This is normally a multiple of salary, usually two-to-four times your salary. Pensions for a dependant and children may also be provided.

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