Workplace pension or personal pension?

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A question asked a lot is “Should I contribute to a workplace pension or a personal pension?”.

In short, workplace pensions have some beneficial aspects over personal pensions, however, you may not benefit from individual advice to ensure that you achieve your personal goals. If you are self-employed then you will not have any workplace pension and so starting a personal pension plan is critical. The new workplace pension legislation coming into effect means that the charges will be low, with a proposed cap on charges of 0.75% to 1% per annum of the fund value. For example, if your growth achieved on your plan is 7% per annum then the net return after charges is 6% to 6.25%.

Furthermore, the cost of establishing and administering the plan is placed on the employer rather than you as an individual. However, the employer is not required to provide an annual review service and so you may not know if you are taking the appropriate investment risk and whether you are on track to achieving your retirement goals.

Finally, if you contribute to your workplace pension then your employer will also have to contribute a minimum amount of 3% per annum of your basic salary or 3% total earnings per annum by 2018 and so you benefit from an additional funding boost.

An example of how a workplace pension might work…

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