We often get asked what is the difference between a workplace pension and a personal/private pension. The short answer - not much!
Both allow for individuals to prepare for their retirement by receiving monthly or ad hoc contributions, however, there are some key differences which sets them apart which are useful to know.
Like most things in life, there are pros and cons for both options.
Let’s explore some of the key features when considering a Workplace Scheme V Personal Pension:
- Workplace employees benefit from employers pension contributions which is currently set at a minimum of 3% of your annual salary for those which qualify. Some employers will match the level you pay, meaning you are receiving additional funds. Personal schemes do not receive employers contributions.
- Employees are auto-enrolled into workplace pensions, unless they choose to opt out or don’t meet the minimum criteria, meaning they are preparing for their retirement without always realising, as contributions are deducted from their wage slip which can make it easier for some.
- Workplace schemes can sometimes benefit from cheaper management fee’s due to the number of plans the provider is looking for the company.
- With a workplace pension, you may have limited fund selection options with most workplace schemes automatically put you into a default fund, which may not be appropriate for you and your attitude to risk.
- Personal schemes will be set up by yourself or your Financial Adviser and you will be able to select a pension provider that meets your specific retirement goals and aspirations.
- Personal schemes can be flexible in that they don’t require you to make regular monthly contributions which can be beneficial for the self-employed where income may vary month to month.
The best advice I can give to anyone considering their pension options is that having a conversation about what it is you wish to achieve in retirement is the best first step towards achieving your goal of reaching financial freedom.
