Spring has sprung and this April has brought us not only sunshine, but something even brighter - big changes in pensions!
Fundamental reforms, introduced in the 2014 Budget, come into effect this month. But if you don't have a clue what these changes are, you're not alone. To understand the implications, we need to take a step back and clarify some pension jargon. There are two main structures of pension provision....
The first is known as ‘defined contribution’, or ‘money purchase’ where you, the employer, or both, pay in a set amount each month. The fund grows and you end up with a pot of money at retirement. But the size of this pot isn’t fixed - it depends on how much is put in when, investment returns, charges etc. And the pension income you end up receiving is unknown until you start drawing from this pension pot.
The second structure is a ‘defined benefit scheme’, known as a ‘final salary pension’, which pays out a guaranteed level of pension income based on your income when you retire and the number of years you’ve been working.
Most people today are in a ‘defined contribution’ scheme, and the current reforms are mostly in relation to this. So what’s changed?...
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