Your pension is definitely one of the most precious things you take home after retiring. After all, that is what is responsible for your post-retirement life and to fill up for all your expenses when you stop to actually earn. Hence, it is also essential that you are aware of your pensions and any associated risks. So, is your private pension truly safe in the UK? Well, it is – continues reading to know for yourself!
What is a pension scheme?
A pension scheme or a pension fund is a type of savings scheme where the employee and the employer invest some portion of the employee’s salary into a pre-designed savings plan as the employee’s pension fund for their post-retirement life. The objective of this pension scheme is to have a steady income flow after the employee completes their active years of service with an organisation and is ready to take the life-long break from work called retirement.
What is a private pension scheme?
If you work with an organisation or with the British government, you are automatically enrolled on their pension scheme. This rolls over whenever you change a job or shift to another organisation since it is taken care of by the authorities. However, if you are self-employed, then you do not have access to an automatic pension scheme. But, the private pension scheme allows you to get yourself enrolled to start a pension for yourself.
When you start your own pension, you receive a 25% tax top-up from the UK government and the pension is successfully passed onto your beneficiaries without any tax deductions if you happen to die before the age of 75 years. Here are the types of private pension schemes you can try –
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Personal pension
The personal pension scheme is what you set up with a pension provider for yourself, and it is managed by professional money handlers.
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SIPP
SIPP is a defined personal pension contribution that enables you to decide how you invest your savings. You can either manage it yourself or appoint a fund manager.
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Stakeholder pension
This type of defined contribution scheme is a contract between you and your private pension provider. A spouse is also eligible to contribute to this pension scheme on your behalf or for you.
Is private pension scheme safe?
There are several pension scams and frauds that threaten an individual’s pension savings. However, the UK authorities take an active interest in protecting your hard-earned money to ensure that you live a hassle-free life post-retirement. Even if something bad happens that results in you losing your pension money, the safeguards in place ensure that your entire pension fund is never at risk, ever.
The financial services compensation scheme (FSCS) is the United Kingdom’s statuary deposit insurance for customers protecting their pensions at all times. It protects up to 85,000 euros per person, per organisation. Hence, whatever the size of your pension scheme is, a significant portion of it is insured/protected in most cases.
Here are the different scenarios in which the financial services compensation scheme covers for you –
- When your private pension provider fails to provide you with your pension money, the FSCS covers 100% of your said claim without any upper limit.
- Whenever your self-invested personal pension provider fails to give you the promised amount, the FSCS covers up to 85,000 per person, per organisation.
- If, in any case, due to any reason you receive a piece of bad or wrong pension advice, you can ask for a claim compensation of up to 85,000 per individual, per firm, and the FSCS will cover it.
The financial services compensation scheme does protect your pension funds. However, what it does not do is cover for any performance losses. This means, if the shares that you invested in witness a drop-down in prices, you cannot claim compensation from the FSCS under any scenario. However, suppose you believe that there was an improper or poor portfolio/investment management with your shares. In that case, you can definitely reach out to the FSCS for a claim, and the matter will be looked into accordingly.
Conclusion
The private pension scheme can indeed be a tricky way to protect your hard-earned money for the future. However, the UK authorities have set the proper rules and regulations needed to ensure that your money is safe with the private pension providers, and even in cases of any mishap, the FSCS enables you to get back your money as compensation without much trouble. So, in short, your private pension scheme is undoubtedly safe in the United Kingdom, and there is nothing to really worry about!
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