There are two broad types of plans: Defined Benefit and Defined Contribution plans. A defined benefit plan is becoming rarer. This is a plan which an employer may provide promising a set income on retirement. This is determined by a formula based on earning history, years of service and age amongst other criteria. It does not depend on investment performance.
A defined contribution plan is more common. This is where an employer, employee, or a mixture of both pay into the plan. In its most simple form, a defined contribution pension is simply a savings plan. It is designed to help people to save for income later in their lives.
Once money has been paid into the plan, either as a lump sum or on a regular contribution basis, it can be invested in various ways depending on the type of pension. It is important to make sure that the money is invested in line with your attitude to investment risk, as the value of investments can go down as well as up, and is managed appropriately given your objectives such as how much income you may need in retirement and how long you have until you intend to take income from the plan.
Our pension advice services can help you arrange an appropriate pension plan and work with you to keep this plan on track through our ongoing advice service.Contact Us