Pension Schemes : The Way to a Secure Future


The simplest way to understand what a pension scheme is to look at it as a retirement or savings plan. Also, compared to other types of savings, pension schemes are quite favorable in relation to taxes.

It is a simple fact of life that no one can go on working forever. Different countries have different retirement ages and so it is important to plan for one’s retirement.

Pension schemes should definitely be a part of your retirement arrangements. Not only are pension schemes available in several types, but future pensioners also have the option available to invest in more than one type of scheme.

For example, some employers offer their employees pension schemes and many people also opt to have their own personal pension schemes set up separately.

The ABCs of pension schemes

Exactly how your pension scheme will function depends on the type of scheme it is, that is, whether it is a defined contribution scheme or defined benefit scheme.

Defined Contribution Pension Schemes

For instance, in defined contribution pension schemes, the exact amount a pensioner is likely to receive is not defined ahead of time. Rather, one typically builds up their pot of money, by contributing to your pot each month. This amount is then invested. Therefore, the exact amount of your pot at the end depends on several factors, such as the amount you have contributed and the performance of the investments themselves. Lastly, if the pension is a workplace scheme, both you and the employer contribute to the pot each month.

To give customers more choice, there are several types of defined contribution pension schemes available.

One of them is the Small Self Administered Scheme (SSAS). The SSAS is an employer-sponsored workplace pension that allows the employer to retain greater flexibility concerning investments. Though, the SSAS is also appropriate for employees.

One of the biggest advantages of the SSAS scheme is that it includes no obligations to make monthly contributions to the scheme. Furthermore, the scheme is also penalty-free if further contributions aren’t made.

Other advantages include flexibility. The SSAS scheme can be tailored to suit your unique needs. Not to mention, this particular pension is tax-efficient. Meaning that you can take advantage of tax reliefs on any personal contributions you make.

Defined Benefit Schemes

If you opt for a defined benefit pension scheme, however, you will be aware of the exact income you will receive when you reach retirement age. The amount of income you receive is calculated by taking into account the length of service and your salary.

You (and your employer) will likely have to make contributions to the scheme, though, the finer points of the pension plan will be explained to you by your relevant scheme administrator depending on the scheme.

Other Pension Plan Options

Another type of retirement plan is the Approved Retirement Fund (ARF). An ARF may be described as a type of personal retirement fund that helps you invest your pension fund after retirement. An ARF also affords you absolute freedom in the choice of where to invest your retirement fund.

However, to qualify for an ARF you must have a (guaranteed) pension of at least €12,700 per annum, or have at least €63,500 in an Annuity or an Approved Minimum Retirement Fid (AMRF).

Besides the above-mentioned, an ARF may be availed by several persons. For example, members of SSAS, Personal Pension Plan investors, Holders of Buy Out Bonds, etc.

Next, let’s focus on Buy Out Bonds. Buy out bonds are ideal for those who have left the company where they had a pension plan or those whose work pension scheme is winding up.

This is because a buy out bond (also referred to as personal retirement bond) allows you to transfer your pension fund to a personal pension scheme.

Generally, the trustees of your existing pension scheme will aid you in establishing a buy out bond. Though, interested parties are advised to investigate whether they can transfer their existing pension scheme into their own first.

A buy out bond allows people greater flexibility in their career by allowing them the ability to leave a particular job without any negative impacts on their pension schemes. Apart from this, these bonds are intended to afford you better transparency, control, and security.

QROPS, also known as the Qualifying Recognised Overseas Pension Scheme, is an innovative pension scheme that was launched in 2006 as a direct result of the EU Human Rights Requirements of the Freedom of Capital Movement.

Therefore, making pension schemes accessible to people of all nationalities. It provides the opportunity to pensioners, who have paid into a pension scheme in the UK but plan to live out their retirement in other countries, to take their pot of money out of the UK tax-free.

UK residents who worry about the effects of Brexit on their pension or who want to safeguard their retirement savings against the increasingly constraining UK pensions regime can also benefit from the QROPS Scheme.

Also, the Personal Retirement Savings Account is a pension scheme that is flexible and cost-effective. Through a non-standard PRSA, pensioners can monitor both the investments and costs associated with the retirement plan.

There is a varying range of asset classes that are tax-efficient, that can be used regardless of the current or future employment status. Hence, providing the pensioners with great flexibility on how to receive their pension benefits in their retirement.

Finding the pension scheme that’s right for you

To understand the dynamics of pension schemes and their varying benefits, along with the necessary rules and regulations that apply to the different schemes that are offered to pensioners, one would need more in-depth research.

People looking into pension schemes can now easily look up different websites that provide a world of information to make your decision far more fruitful. There are advisor newsletters, videos, answers to FAQs, links and downloads that are offered on these sites to assist you in your research.

As a matter of fact, there are now even videos available that discuss and inform pensioners about the different schemes that are in the market. Moreover, all of this is done in the easiest possible way rather than using technical lingo which can confuse people.

Making an informed decision is of the utmost importance and it is recommended to research the plans that are of interest to you before you choose a scheme so that you can reap maximum benefits in your retirement.


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