Workplace Pensions and Retirement
Workplace pensions are a useful tool for saving for after you retire. In the UK, workplace pension schemes are mandatory for employers to provide by law. This can be a DBS or a defined contribution scheme. Therefore, the employee, employer, and government all contribute to your pension pot.
In a DB scheme, the employer commits to a certain pension, whilst bearing the investment risk. This produces a pension which is based on your salary and how long you’ve been a member of the scheme. Contrastingly, a defined contribution scheme means that your pension depends on how much is paid in and how well the investment performs, with the employee holding this risk.
The State Pension is another important part of retirement income in the UK. This is a regular payment from the government which you can claim after reaching the State Pension age of 66.
However, it is important to remember that this will most likely increase in the future. Your State Pension is based on your National Insurance record, meaning that you will need at least 10 qualifying years on your National Insurance record to receive any State Pension.
You can delay taking this State Pension until later in life, which could increase the payments once you start to withdraw them. However, when deciding this, it’s important to consider your overall retirement income, adding in any workplace or personal pensions to understand your financial situation more clearly.
Public Sector Pensions in Focus
Public Sector Pensions are usually defined benefit schemes or career average schemes, which provide a guaranteed pension income based on your salary and how long you’ve been a member of the scheme. The employer or government then bears the investment risk.
Public sector pensions often provide a higher and more generous income in retirement than many private sector schemes.
They also offer the plus side of a tax-free lump sum at the beginning of retirement, often providing for spouse’s pensions or other valuable benefits on your death. Protections are also in place by legislation to protect members’ benefits. Although this makes them more secure, the rules around when you can take your pension and how much you’ll receive can be complex, and not without risk.
Although public sector pensions have recently come under criticism due to their rising cost, they remain a key part of the remuneration package for public sector workers. And with the recent shift away from defined benefit pensions in the private sector, public sector pensions are increasingly seen as a benefit of public sector employment.