While employees are usually able to take advantage of some excellent employer sponsored pension schemes, many prefer to go down the route of taking out a private pension. Sometimes, individuals will opt out of employer sponsored pensions completely. However, it is more common for people to open a private pension in addition to an employer one, especially if contributions to a pension from the employer are particularly generous.
Even when an employer is topping up pension payments, there are still many benefits to be had from taking out a private pension.
The biggest benefit, certainly in comparison with employer pensions, is that a private scheme will give you much more flexibility when it comes to where your contributions are invested. Yes, it requires more research from yourself, but if you want to have greater control over your pension, it beats the “we’ll invest on your behalf without consulting you” approach easily.
Accessing Your Money
Money held in employer pension schemes will only become payable typically when you retire or if you leave the company, although you usually have the option of keeping it held in your account anyway.
Private pensions are usually much more accessible. That said, when you open a private pension plan, you’re doing so on the basis that you’ll begin receiving the annuity at a set point, which more often than not will be on the date you’re planning to retire. Should you request to withdraw your money prior to that date, then your pension obviously won’t be as large, meaning you’ll need to carry out some financial planning to ensure your lifestyle needs are met.
In some cases, you might be able to open a fund where you can continue paying into your pension but withdraw the returns on specific investments or interest.
Fixed Pensions & Investments
Some private pension schemes work in the same way as fixed term savings accounts. This might be over the full term of your pension contributions, or over shorter 5 – 10 year blocks during the period you hold your pension. Finding a pension scheme that offers this is brilliant if you’re keen to have as clear an idea as possible of how much money you’ll receive in annuity when you begin to make withdrawals or receive a lump sum.
Although such a pension scheme will enable you to plan your finances, fixed schemes are often less lucrative than other pensions. You’ll received a fix sum, but it might be the case that further profits could have been enjoyed. This is a low risk, relatively low return approach, although beneficial for the right person.
Should You Choose a Private Pension?
Following the meltdown of the global economy in the last five years, people are more conscious than ever of ensuring their financial affairs are in order. A private pension is definitely something you should consider.If you have a good employer who offers an attractive pension, use a private pension in addition to this. Even if you only contribute nominal sums of money, you’ll be ensuring an additional income for yourself when you reach retirement and taking positive steps to secure your future.