Pension Plan: How does It Work?

Pension is a retirement fund to which the employee contributes for use in the future. Sometimes even the employer contributes to the fund. The government always encourages the people to save money for their old age and hence to boost the savings on pension they provide tax relief of 20% and even 30% through tax returns. There is possibility of transferring your pension amount from one company to another. However, it is advised not to do so as you may not be getting the same return or benefit with your new pension scheme.

  • The pension you get or the growth you get depends on how much you invest. You have the liberty to deposit as much amount as you want. It is flexible and the pension is fully in your control.
  • The value of the pension amount depends on your investment in the same. The value of the invested amount may go up or down and it may become less than the amount you invested. However, this should not perturb you and should look for in the long term and above all you need to know the value of your investment at the time of retirement.
  • The pension money can be accessed from the age of 55. However, it is considered useful to stay longer as there are more chances of growth of pension.
  • While taking up the pension you can access 25% of it as a lump sum amount and that too tax free. The rest amount can be used by people to serve them the income they require to live peacefully after retirement.
  • The money in the pension plan can be used to buy an income which will provide income for you and your dependents after you retire from the job and is called as annuity.
  • The factors that affect the amount that you receive in your income are the value of your pension and also your life expectancy.
  • Another type of pension plan is SIPP or Self Invested Personal Pension in which the pension is kept invested and at the same time you can take income while your pension grows.
  • The amount that can be taken out solely depends on the limit set by the government and is none as GAD limit.

This information provided is just for information and can vary as per the market. The tax relief provided can also change.