In England, a substantial portion of the financial activities carried out by families is made up of pension investments. The specific characteristics of the English pension system allow this phenomenon to be very widespread and to have a very high degree of incidence compared to other countries.
The most relevant feature that allows this system to diversify from other countries is the possibility of choosing how to invest one’s pension to make the sums set aside pay off. In fact, although there are several globally diversified private pension schemes, the British government has recently decided to modify its pension system through numerous reforms.
By making the system leaner, faster and easier to understand, each individual worker will be more stimulated to choose the options that best suit his or her needs.
The pension system in the UK
The Government body which collects, manages, and distributes pension funds is HM Revenue & Customs, which also handles the disbursement of child benefits and all other instruments of government subsidy.
Therefore, the taxes and contributions paid by workers go to feed the state pension funds, which is a severance pay recognized to all workers. But let’s see in more detail what it is and, above all, what the private supplementary regimes are.
The State pension
To collect the State pension, it is necessary to have reached the retirement age and paid at least ten years of contributions. With the occurrence of these requirements, the worker has the right to collect the minimum amount of the State pension; on reaching the thirty-fifth year of contributions, however, the worker will be entitled to the maximum amount.
Remember, to have a full year of contributions counting towards your pension, you need to earn around £6,000.00 a year and pay contributions; in addition, the years preceding the entry into force of the new pension system will also be counted, as well as non-consecutive years.
In the event of errors or omissions, the HMRC body in charge will notify them. However, it is possible to autonomously verify what has already been paid thanks to the tools made available by the British government.
Nevertheless, you should bear in mind the State pension, even in its maximum amount, is in any case insufficient for the maintenance of an individual. As a matter of fact, the sum for the basic pension for 2022 is £185.15 a week. Therefore, it may be necessary to supplement with a private pension.
The private pension
A private pension, also called personal pension, is a product one can use to save money for retirement apart from the State pension scheme. There are many solutions presented by private pensions providers, but essentially it will be necessary to choose whether to activate an individual pension to be managed independently (this category includes stakeholder personal pensions and self-invested personal pensions – “SIPP”); or opt for the activation of one of the predefined retirement plans proposed by the employer.
In these cases, the sums you pay will be invested by the institution which pays the pension, according to a predefined plan. Thus, it is necessary to underline that, like every other type of investment idea, there’s a risk to consider and the chance of getting less than expected is always around the corner.
The amount that will then be collected will depend on various factors such as the amount paid over the years by the worker, any amount supplemented by the employer, the degree of risk of the investment, and of course the trend of the investments of the pension fund, the maturity fixed for collection. As always, when it comes to savings, it is necessary to rely on consultants and professionals in the sector to find all the information necessary to make an informed and careful choice.