Pension contributions are the retirement plan for the future by putting something aside to live on when you grow old.

The main idea with a pension is when individuals get old, they have less strength to work compared to when they were younger.

Pension comes in different forms, all of which have specifications. There are three major forms or classifications of pension. I will explain them below.

To explain pension easier, Our Northampton accountants have classified it into 3 categories:

State pension contributions in the UK

This is the income an individual will receive from Revenue when they get to pension age.

The state pension age for taxpayers ranges from 65-68 years.

The amount a taxpayer receives will be based on the national insurance contributions they have contributed in their working lifetime.

To know how much state pension contributions you have, kindly click.

If you will like to know more about the national insurance click

Are State Pension contributions taxed?

Pension income is treated as normal income.

Therefore taxpayers will pay tax based on the amount they receive as pension and their other income in a tax year.

The other main way of providing for the future is

Occupational pension and Personal Pension scheme:

Occupational pension contributions

The employer will set up a pension scheme with a pension provider and make contributions to taxpayers in future.

There are three main types of pension contribution:

The defined benefit system:

This is a pension scheme where the employer promises to pay an employee a certain amount of pension at the time of retirement.

The employer will set this scheme up and ensure they put enough money to ensure they pay the amount they have promised the employee.

It’s usually based on the final salary of the employee.

The defined pension contribution system.

The Defined Benefit System is a pension scheme where the employer promises to pay the employee a certain amount of pension at the time of retirement.

The employer sets up this scheme and ensures that they put enough money in order to pay the amount that they have promised the employee.

This is usually based on the final salary of the employee and the majority of the Defined Benefit Scheme is closed to new members. In other words, new members cannot benefit from this scheme

The major difference between the two pension contributions schemes.

Under the defined benefit scheme, an employer will promise an employee a certain amount at retirement based on the final salary.

However, under the Defined contribution system; there is no certainty in the pension that the employee will receive at retirement.

Hybrid Pension Contributions:

In the Hybrid Pension Contribution, as the name implies, features of the Defined Benefit and Defined Contribution Schemes are used or brought into action.

Personal pension contributions  scheme

This scheme is arranged by the taxpayers themselves to provide income for the future.

Most times, this is usually to complement their other pensions or to provide a pension in the future because they have none at the time.

The income that will be received in the future is based on the amount they have contributed to the pension scheme as well as the investment from the pension.

Conclusion on Pension contributions.

We hope this blog post has been educative

If you would like to have 30 minutes of a free consultation,  Kindly contact us