Saving up for retirement is something that millions of people do. They do this purely to make sure that, when the time comes to leave the world of work for good, they want to have the means to enjoy life. Most people pay into some form of pension fund, whether it’s one set up by their employer or at their own accord, but some people are starting to think about what happens to the money they pay into their pension pot every month.
On a monthly basis, most workers pay a set amount into a pension pot, annuity or savings account, and once they retire, they can use the money that has accumulated over time to live on for the rest of their lives. However, pensions can vary greatly in value depending on the rate of interest set by pension providers, the amount of money saved and how long the pension holder is expected to live post-retirement. Basically, it means that it is important for anyone who has a pension pot to make the most of it by any means possible.
Every pension comes with an interest rate, and the higher the rate, the more money will be added to your pension fund every year. However, there are many different types of pension to choose from, all of which have different benefits which make them appealing, not least differing interest rates which, at face value, seem very attractive.
Defined contribution pensions are where pension holders can save up until retirement and then purchase an annuity with the money in their account. This can be complicated, not least because looking to purchase an annuity at short notice may be a little time-consuming. However, purchasing an annuity is a good idea at any age, no matter how much money you have saved over the course of your working life.
Defined benefit pensions, otherwise known as final salary, pay a fixed amount after retirement from your pension fund. This is something that many people look at doing for their retirement, and the annual income from final salary a pension is calculated like this:
Total pension pot (e.g. £40,000) multiplied by the number of years on a pension scheme (e.g. 20) at work and then divided by the accrual rate (50): £40,000 x 20 / 50 = £16,000 income from your pension each year.
Alternatively, with the help of people like Mypensionexpert.co.uk, you could purchase an annuity straight away. Annuities work by paying out a set amount from your pension fund each year, usually a percentage defined by the annuity provider. This provides a regular, guaranteed income which provides financial peace of mind, while it also makes sense to purchase early on in life if you feel your company pension package might not represent great value for money.
When looking at annuities or any other pension package, it is vital that you get the best value for your money. Shopping around for the best deal is advisable, as saving for retirement is hugely important. The better deal you get, the more you get from your pension fund to live on when you’re free to enjoy your golden years.