Understanding Ride-Sharing Apps

Ride-sharing apps such as Uber and Lyft have provided us with the opportunity to make a little extra money in our spare time. But should we be wary of using our own cars as taxis and how will it affect our existing insurance policies?

Uber allows users to hail a taxi using a click of their thumb, any drivers local to them are alerted to their journey request and the user can see the details of their driver before they arrive.

How do I get paid?

Customers pay their fares using the app at the end of the trip, the app client who then pay the driver on a weekly basis, and how much money you earn depends on how hard you’ve worked.

The flexibility afforded by such apps is tempting to those who want to earn a bit of extra cash in their spare time, but what effect can it have on your existing vehicle insurance?

Can I begin driving immediately for a ride-share app?

Before you even begin as a driver you must have the relevant paperwork in place, including Private Hire licences issued by local councils to taxi drivers and specialist taxi insurance, which you’ll need to get on top of your existing car insurance policy in order to cover yourself.

UPDATE: As per Gov.uk's announcement, you no longer need to apply through your local council and pass a DVSA taxi assessment to be eligible to drive a Private Hire Vehicle (PHV). You may visit this website to see how you can apply for a driver's licence for taxis and PHVs.

Do I need any additional insurance?

Your personal car insurance policy will not cover you against commercial use, so having additional taxi insurance is essential if you want to make use of such schemes.

Uber and others do not offer insurance as part of the service but do conduct background checks on potential drivers, and will look at aspects such as driving convictions when selecting if you’re suitable.

Having a public liability insurance policy helps to cover you against claims made by passengers who may get injured or lose possessions whilst in your car. Because of the unpredictability of your passengers and situations, having said insurance in place can help protect you as you’re doing your rounds.

Can I use my current car for such a scheme?

Uber and others will usually have criteria as to what vehicles can be used as taxis, with minimum requirements for each level of service, including vehicle age and size

For example, some can be used but must be at least a saloon model, while some may be classified as higher-type vehicles and therefore qualify for a different class of pay.

Say you have an 8-seater MPV and are able to transport more passengers as a result, if you wanted to use it for a service like Uber it would fall under a different category due to the size of the vehicle, which may lead to a higher rate of pay but could also incur extra costs.

You can usually find a list of suitable cars on the company’s website, so it can be worth double-checking if yours if eligible before starting out.

How much is it going to cost me?

Tariffs are worked out according to the length of a journey, with factors such as traffic and any subsequent delays adding to the estimate as you go as these are determined using speed, time and distance.

When the customer pays the app you’re then paid a percentage using a weekly payment, so the more pickups the more you’ll take home.

Bearing in mind you’ll have other costs, such as petrol to keep it running, maintenance costs as a result of an increased use and the additional insurance you’ll require on top of what you already pay.

Is it for me in the long-term?

For some, it’s a useful little extra earner, but it doesn’t suit everyone so research is key when deciding if it’ll work for you, be sure to weigh up all the costs before committing.

Also, keep in mind that all those extra miles you’re putting onto the vehicle, as a result, could add to the cost of your car insurance in future, particularly as it would have increased the distance of travel per year.

If you’re thinking of embarking on ride-sharing as an additional job it can be worth researching into taxi insurance to see how much it’s going to potentially cost you.

Factors That Determine Your Annuity Income

As annuity rates dip after the infamous credit crunch, pensioners were left with a bare minimum monthly income despite selling their entire hard-earned pension pot.

Then came the pension overhaul which has changed the way retirees can access their pension pot and use it.

Buying an annuity before the age of 75 is now merely an option that pensioners can choose to ignore. They can instead take the entire amount as a cash lump sum or draw small instalments of money when they wish to.

But as experts recommend, buying an annuity may still be a better choice, because it guarantees retirees with a fixed monthly income for the rest of their lifetime.

With rising life expectancy, a person’s retired life could last well beyond two decades, even three. Will the money last that long if you take it all in one go?

Would you rather blow your entire pension on a Lamborghini or have a fixed monthly income that remains unaffected by the economy or the stock market crash?

How much will you get?

The first question that most savers ask is, ‘How much money will I get every month if I buy an annuity’. The answer is relative.

There are multiple factors, individually dependent, that can influence your annuity income. Here are some of them.

  1. The Type of Annuity: Buying an annuity is a one-time decision that usually cannot be reversed. So, ensure that you know what you are choosing. The type of annuity you choose along with the options you select will impact your monthly retirement income. For example, if you have a dependent spouse or child, you may have to opt for a joint-life annuity which will reduce your monthly income but ensure that the income will be paid to your dependent nominee for the rest of their lifetime.
  2. Annuity Rates: The annuity rate when you buy the annuity is one of the most crucial factors that will influence your income. If the rates are high, you get a higher monthly income. If the rates are low, the income will be lower.
  3. Deposit Amount: More the money you put into an annuity, the higher you get each month. If you have accessed your pension pot and drawn the tax-free cash lump sum amount (25%), then you may be left with a smaller amount to exchange for your annuity.
  4. Payment Terms: How do you wish to be paid? An annuity provider can pay you monthly, quarterly or even yearly. The more you defer the payment, larger the amount you receive.
  5. Age: The younger you are when you buy an annuity, the lesser you will receive. For example, if you buy an annuity at 65, the insurance company will consider your current health and the life expectancy at that time to determine your monthly income. At the same time, if you choose to buy an annuity at 75, your life expectancy reduces. So, the annuity provider has to pay you a fixed monthly income for less number of years. Hence, you may qualify for a higher monthly income than what you would have received if you bought the annuity at the age of 65.
  6. Your Pension pots: The number of pension pots you have accumulated over the years will increase the amount of money you use to purchase an annuity. So, consolidating your pension pots can give you a higher monthly income.
  7. Inflation: Inflation can affect what you can purchase with your fixed monthly income in 10 years from now. So, unless your annuity income increases with time, it could not be enough for you to lead the lifestyle you do currently. A positive sign is that inflation rate in UK reached an all time record low of -0.10 percent in April 2015. But whether the trend will continue or increase; only time can tell.
  8. Tax: Annuity payments are subject to taxation at your usual rate. So, if you have other sources of income, then you must speak to an independent financial expert about your financial circumstances before you invest in annuities.

Immediate Need Care Annuity

In 2011, almost 300,000 elderly people in the UK were living in a care home facility. If the numbers of people opting for residential care or those in a nursing home were also accounted for, then it would be a significant chunk of the population.

Yet, only a very small percentage of these people receive assistance from the state.

The cost of long-term care can be staggering. It is estimated that residential care can cost up to £30,888 depending on where you are based in the UK.

Nursing care, on the other hand, can cost up to £41,912 depending on the location.

The cost of long-term care may reduce or increase based on your current health condition.

In such circumstances, an immediate needs annuity might be a good choice.

Also known as a care fee annuity or immediate care plan, it is an annuity arrangement that will pay you a fixed guaranteed income for life to pay for healthcare expenses.

How it works

If there is a significant gap between your earnings and the cost of care, then that amount will be provided by an immediate needs annuity, in exchange for a lump sum cash amount.

It can also be purchased by a caregiver to an elderly relative.

The amount that you would need to pay to receive the guaranteed income would depend on multiple factors. Some of them are:

  • The income you need every month
  • Your age
  • Your health condition (lesser your life expectancy, cheaper the plan will be)
  • Annuity Rates

Once the annuity plan is purchased, the tax-free guaranteed income will be paid directly to the care provider. You can either choose a fixed income or opt for an index-linked income which will rise with rising expenses.

An escalation can also be attached to the annuity in which the income will rise by a set percentage (between 1 to 8%) each year.

Also, you can opt for capital protection, which would assure that, in the event of your untimely death, some amount of the pension pot (up to 75%) would be returned back to your family. However, if you opt for capital protection, it would increase the cost of purchasing the annuity.

Deferred annuity

A deferred annuity is a type of annuity plan in which you can purchase an annuity plan but defer the payments for a specified number of years, which is called the ‘Deferred period’. (1 to 5 years)

If your health is deteriorating or you expect healthcare costs in the years to come, then you may opt for a deferred annuity. However, you will have to pay the cost for the care during the deferred period.

The main advantage of a deferred annuity over an immediate needs plan is that the capital amount needed to purchase the annuity. The more the period is deferred,  the less the annuity will cost.

Eligibility 

Annuity providers have various means to determine if an application for immediate care annuity is eligible. The Anderton diagnosis index is considered as a reference guide.

The rate that you may receive will differ according to the medical condition suffered by you or your relative.

Is this the right choice for me? 

An immediate need annuity will be the right choice for you if one or more of the following apply to you.

  1. You or a relative is in a care home or is receiving residential care for a health condition
  2. There is a significant difference in your income and the care costs
  3. You wish to have a guaranteed monthly income that can be utilized for your care costs
  4. You wish to safeguard your remaining capital and cap the cost of your healthcare
  5. You have the capital amount needed to purchase the annuity

It may not be the right choice for you in the following scenarios:

  1. You do not have immediate healthcare costs.
  2. The health condition may only need temporary care
  3. You need the capital amount back in the future
  4. You may be eligible for Continuous Care Funding by the NHS

The Flipside 

An immediate care annuity is usually a one-time purchase that cannot be reversed. For example, if your health condition improves a few years after purchasing the annuity, you cannot cancel it and cash-in.

Also, if your healthcare provider anticipates a short life expectancy for you, then there are other annuity options like an enhanced annuity which may be a better choice.

Read more Types of Annuities to know your options and make a wise decision.

 

 

 

 

 

Understanding Lifetime Annuities

After years of appearing on the horizon, when retirement finally looms large, the years ahead appear like a haze.

What will retirement life be like? Where will you live?

Can you maintain the standard of living that you are so used to or will there be a drop in lifestyle?

Finally, it all comes down to how well you prepared for the twilight years.

You worked diligently to accumulate every penny that you could and built a small pot that you hope will suffice for the rest of your life.

But with inflation biting away at your savings and increased life expectancy, will your pension pot last as long as you do?

Outliving your pension fund can be a nightmare for most retirees and a lifetime annuity may be the best choice in such a scenario.

What is a lifetime annuity?

In a nutshell, it is a contract between you and an annuity provider (an insurance company) who guarantees to pay you an income for the rest of your life in exchange for a part or whole of your pension pot.

You can choose to draw up to 25% of your pension amount as a cash-free lump sum and use the remainder to buy a lifetime annuity. Alternatively, you can invest the entire pension pot in exchange for your lifetime annuity depending on your individual financial circumstances.

The rule of thumb is that the more you invest to buy an annuity, the more you will be paid every month.

There are two different types of lifetime annuities that you can select and the type you choose, along with the customizations you make, will determine your income for the rest of your life.

Basic Lifetime Annuity 

A Basic Lifetime Annuity offers a bundle of income options that you can select depending on your individual circumstances.

  • Single Life Annuity: If you have no financial dependents or if your spouse or partner has their own pension scheme to rely on, then a single life annuity should be your first choice. In this type of arrangement, you will receive a fixed income for the rest of your lifetime. The payments will stop after your death.
  • Joint Life Annuity: A joint-life annuity is ideal if you have a dependent spouse or partner who does not have a pension scheme of their own. It can also be beneficial if you have dependent children. In this type of annuity, you will receive a fixed monthly income (usually lower than a single life annuity) for the rest of your lifetime. It will then be transferred to your spouse, partner or any nominated beneficiary. In case you nominate your children, it will be paid to them until they reach the age of 23.
  • Fixed Income Annuity: A fixed income annuity will provide you with a fixed monthly income which you and the annuity provider can select beforehand. However, it will not be protected from inflation and if the prices of commodities like food increase over the years, you will be able to buy lesser with the same amount. The advantage of a fixed income annuity is that it starts off with a higher monthly income as compared to an escalating annuity.
  • Escalating Annuity: If you wish to protect your monthly income from inflation, then you can choose an escalating or increasing income annuity. There are two different options that you can choose from.
  1. A preset rate at which your income will rise every year (3 to 4%)
  2. An index-linked option in which your income will be adjusted as per the inflation. If inflation reduces and prices fall, then your income will also subsequently reduce. Alternatively, if inflation rises, then your income will also increase. This protects your monthly retirement income from inflation.
  • Guarantee Period: A monthly fixed income would be paid for a fixed term period (example 10 years) irrespective of whether the annuitant is alive or dead.

Investment-Linked Annuities

Investment-linked annuities are an apt choice if you have other fixed monthly income investments and are willing to take the risk in exchange for a higher monthly payout.

It is directly linked to the performance of your investments. If the investments perform poorly, your monthly income will reduce but not go below a minimum guaranteed amount.

On the other hand, if the investments perform well, the monthly income will increase considerably as compared to a fixed lifetime annuity.

Which should I choose?

Your choice of an annuity should be dependent on your assumptions about future cash flow, your current financial circumstances, your health, dependants if any and your attitude towards risk.               

 

 

 

Fixed vs Increasing Life Annuity

One of the most difficult choices that retirees often face when looking to select an annuity is whether to opt for the instant riches offered by a fixed annuity or opt for an escalating annuity to safeguard the income from the inflation demon.

A common mistake is to be allured by the higher starting income provided by the fixed or level annuity without fully understanding how it will impact your lifestyle in the years to come.

As always, your choice of annuity is a very personal decision that depends on multiple factors like your health, your financial circumstances, your lifestyle, your lifestyle goals for the retirement years and healthcare costs.

But if you are standing at that crucial juncture twiddling your thumb, then let’s take a closer look and compare what each type of annuity has to offer.

Fixed Income Annuity

A fixed income or a level annuity will pay you a fixed income for the rest of your lifetime. It starts off with a higher yearly annuity payment as compared to other types of annuities. But the payments will taper down with time but not go below a minimum guaranteed payment.

Upside 

  • You will receive a higher amount to start with.
  • You will know beforehand what your retirement income will be, allowing to you plan ahead

Flipside 

  • Since you will receive the same amount year after year, inflation will erode its value with its sandpapered tongue.
  • You will be able to buy lesser with the same amount after a decade
  • The payment will be lesser during the later stages of the annuity

Is it the right choice for you?

If you have multiple pension pots and other funds tucked away that will cover you in the later stages of retirement; then you can take advantage of the higher income payout in the earlier years, offered by a fixed income annuity.

On the other hand, if you anticipate high healthcare costs in the later years, then you should consider other options.

Escalating or Increasing Annuity

An increasing or escalating annuity will provide you with an ‘inflation-proof’ retirement income.

There are two types of escalating annuities.

  • Index Linked: Your annual income will be adjusted according to a designated level of inflation which is usually based on the Consumer Price Index or the Retail Prices Index. So, if inflation rises, your income increases too. On the contrary, if inflation reduces as it happened in April 2015, your income may reduce also. But its buying power is retained no matter which way the prices go.
  • Increasing Rate: Your income will increase every year at a set rate which can be selected by you at the start of the annuity term. It can be between 0.8 to 5%. The rule of thumb is that the higher the percentage by which you want the income to increase each year, the lower the starting income will be.

Upside

  • Your monthly income stays inflation-proof, and its buying power does not erode with time
  • Your income may increase in the later stages of retirement which may be beneficial if you anticipate healthcare costs.

Flipside

  • You may receive a much lower monthly income than what a fixed income annuity would provide you, especially if you choose a high annual rate of increment.
  • Some annuity providers set a cap on the maximum annual increase that you can get. Ensure that you read the fine print and know what you are purchasing.

Is it the right choice for you? 

If you have other income sources at this point in time, then you can opt for an increasing annuity. Despite having a lower income to start with, you will be well protected against inflation which can be beneficial in the later stages of retirement.

Most people underestimate the amount of time they may spend in retirement. On an average, you should expect to live at least 20 years in retirement. In the last decade, inflation has led to an average price increase of 3 to 4%.

Make the right choice

Ensure that you compare both options and then make an informed decision.

 

Types of Annuities

Despite the new changes to Pension rules that came into effect in April 2015, most retirees still consider it a better choice to get a fixed income for life, also called an Annuity.

If you have considered your current financial circumstances and have decided that an annuity is the right choice for you, then it is imperative that you buy the correct type of annuity.

Yes, buying an annuity is a task that requires a fair amount of forethought because it is mostly an irreversible decision. Your choice of annuity will also determine the fixed-term income/ monthly income you and possibly, your dependants may receive for the rest of their lifetime.

There are different types of annuities and your choice should depend on your individual financial requirements.

1. Lifetime Annuity: A lifetime annuity provides you with a fixed lifetime income based on your life expectancy and current annuity rates. There are two varieties of Lifetime Annuities.

  • Basic Lifetime Annuity where you can fix your income beforehand. Once again you have the option of choosing between a single life annuity (income only for you) or joint life annuity (if you wish to nominate a beneficiary to receive the income after your death)
  • Investment Linked Annuity is a type of fluctuating income annuity where the income depends on the performance of your investments. There are two different types of Investment Linked Annuities. One is With-Profits Annuity where the income is dependent on the performance of the With-Profits funds of the Annuity Provider. The second is Unit-Linked Annuity where the income will be dependent on the funds that you choose to invest in.

In a lifetime annuity, the annuity rate will be the income that you will receive on every £ that you have accumulated in your pension pot.

2. Enhanced Annuity: An enhanced annuity is normally offered only to people who may have a shorter life expectancy. For this reason, it offers a higher annuity rate which means, a higher retirement income. Some of the criteria for eligibility include:

  • Smokers or a past history of smoking
  • A health condition or disease
  • Obesity
  • A work or employment history in a potentially hazardous environment

The insurance company may ask additional questions before you are considered eligible for an enhanced annuity.

3. Impaired Life Annuity: These are offered to people who suffer from or have suffered from any medical condition which may have reduced their life expectancy. Annuity providers seek complete information on the medical history of the annuitant and additional medical examinations may also be required.

4. Post Code Annuity: A Post Code Annuity offers you a customized annuity rate on the basis of your area of residence. People living in wealthier areas typically receive lower annuity rates as their life expectancy is considered to be higher than that of people living in poorer areas.

5. Temporary Annuity: A temporary annuity pays you an income for a fixed time period or until your death (whichever is earlier). The maximum term period for this type of annuity is five years and hence, it gives you a far higher annuity rate as compared to an equivalent lifetime annuity. You will only need to use a part of your pension pot to purchase a temporary annuity.

6. Investment Linked Annuity: This is a hybrid plan that gives you a partially guaranteed income while the rest of the income is dependent on the performance of your investments. You can select the guaranteed income you need and use a part of your pension pot to buy an annuity which would provide that. The rest of the pot will then be invested and will provide you with additional income on the basis of the returns that these investments generate. If the investments perform well, the additional income will be significant. If the markets are not performing well, then you will only receive the minimum guaranteed income.

7. Purchased Life Annuity: A purchased life annuity, also known as a PLA is a special type of annuity that can be purchased with your income or savings fund that is not part of your pension pot. You may also buy it with the 25% cash lump sum which you may draw from your pension fund. It will provide you with a fixed monthly income but has different tax implications.

8. Fixed and Increasing Life Annuity: A fixed income or a level annuity will pay you a fixed income for the rest of your lifetime. On the other hand, an increasing or escalating annuity will provide you with an ‘inflation-proof’ retirement income. An increasing life annuity has two varieties:

  • Index Linked: Your annual income will be adjusted according to a designated level of inflation which is usually based on the Consumer Price Index or the Retail Prices Index. So, if inflation rises, your income increases too. On the contrary, if inflation reduces as it happened in April 2015, your income may reduce also. But its buying power is retained no matter which way the prices go.
  • Increasing Rate: Your income will increase every year at a set rate which can be selected by you at the start of the annuity term. It can be between 0.8 to 5%. The rule of thumb is that the higher the percentage by which you want the income to increase each year, the lower the starting income will be.

 

What is a Pension?

If you are in your twenties, then ‘Pension’ is not a word you will frequently hear. But you will start hearing more of it as you approach your thirties and get into your forties.

Pensions, Annuities, Retirement Saving Plans and Tax Benefits! All this information can be overwhelming to the newbie.

Well, here’s the low-down on it.

A pension is a type of long-term investment plan which allows you to save money for your retirement years. But why do you need a pension? It is a tax-efficient form of savings when compared to others, and the money that you save accumulates into a pot called the ‘Pension Pot’.

When it comes to pensions, you now have more options than ever. You can either opt for a fixed income or a flexible taxed income or take out a part or whole of it as a cash lump sum.

Up to 25% of the pension pot can be taken as a tax-free cash payment.

You can sell the remainder of the pot to an insurance company in exchange for a regular fixed income that you will receive until your death. This is called an Annuity.

There are three different types of Pension schemes – your employer may run some, and others can be set up by you. And the best part is that you can invest in multiple pension schemes at the same time or even invest in ISAs or other tax saving plans.

State Pensions

The State Pension is a payment that the government will make to you on the basis of your National Insurance Record once you attain payable age.

The current eligibility age is:

65 for men born before 6th Dec 1953

Between 60 and 65 for Women born after 5 April 1950 but before 6 December 1953

Due to the Pensions Act 2008, the state pension age for men and women will increase in the future.

To be eligible for State Pension, you must have a minimum of 10 qualifying years where you make National Insurance (NI) contributions or are deemed to have paid it.

The basic state pension in the tax-year 2015-2016 is £115.95 a week. The amount you receive may differ depending on individual circumstances.

RELATED: How to Identify a Pension Scammer

Company Pensions

Company pension schemes are set up by employers for its employees. The scheme is set up under a trust and is completely managed by trustees.

Employees can choose to join a company pension scheme and make contributions towards it every year. In addition, employers also contribute towards your pension scheme selected.

There are two types of company pension schemes.

· Final Salary Scheme: The final salary scheme is also known as defined benefit pension. It is dependent on your final salary and the number of years you have enrolled in the pension scheme.

· Money Purchase Scheme: Money Purchase Scheme is also known as a defined contribution pension scheme. Typically, you and your employer may make contributions into your pension pot. The amount you contribute, returns on the investments made with the pension funds and any charges deducted when you access the pension, will determine the pension that you receive when you retire.

Each one of these schemes has their own perks to offer, and your choice should depend on your immediate and long-term financial goals.

Individual Pensions

Many financial services companies offer Individual Pension schemes which you can keep by yourself. It is not connected in any manner to your employment status.

There are multiple choices again.

Personal Pensions: This is an ideal choice for self-employed people or for those who do not have a company pension scheme. It can be taken with you even if you switch employers.

Stakeholder Pensions: Similar to personal pensions, stakeholder pensions are ideal if you are self-employed or can save only small sums of money at this point in time. Some of the benefits of stakeholder pensions are limited charges and penalty-free transfers to other pension plans.

Self-Invested Pensions: A self-invested pension scheme provides you greater control over your investments. It is usually chosen by people who have a fair amount of financial acumen and like to make their own investment decisions.

If you still have questions in mind, you may look at our Complete Pensions FAQ.

Why You Need a Pension

As you are busy spending on necessities or splurging on the many luxuries that life has to offer, do you spare a moment to think about your twilight years?

Yes, we are talking about retirement when you will no longer have a fixed paycheck every month.

SEE ALSO: When Can I Retire?

The horrific irony is that if you do not plan for retirement, you risk losing the very lifestyle you are so accustomed to.

That designer dress, a faster car, the holiday to an exotic beach location, everything will become unattainable due to lack of income that can sustain it.

To add to this, you have increased life expectancy, rising healthcare costs, caregiving to a loved one or dependent children (if applicable).

This brings us to the question: Do you need to save for a pension or can you and your partner depend on state pension to live life in luxury? Another option would be a Family Income Benefit Policy.

While the state does have a safety net in place to ensure that nobody has to live life in poverty during their retirement years, it cannot be considered enough to sustain a lifestyle that most Britons would consider comfortable.

Here’s a basic figure to help you understand.

Currently, the most you can get from a Basic State Pension payout is £122.30 per week. That means, if you are eligible, you get around £6300 a year.

Is that enough to live a life of luxury? Not even close.

Thinking about Pension Plans

If you still haven’t started, then this is the perfect time to start thinking about Pension Plans.

Apart from being an absolute necessity if you are serious about not being dependant on State Benefits or your children for that matter, then you must start investing in pension plans.

Pensions have numerous advantages too. Here are some of them:

Tax Benefits: Payments made into a Pension fund receive tax relief from the HM Revenue & Customs (HMRC). While ‘tax relief’ may not sound like a compelling reason to start shaving-off a significant amount of your income each month, the effect of tax-free money accumulating over a long period can be immense. The earlier you start contributing, the better because it gives your money more time and potential to increase. Also, the more, the merrier.

Employer Top-Ups: To help people save more money for their retirement, the government has now made it compulsory for employers to register eligible employees into a pension scheme automatically. This is called Automatic Enrollment and is gradually being phased-in starting with the largest employers in the UK. Since your employer will also be making contributions towards your pension (depends on the scheme), opting out of the employer pension scheme is like turning down a pay rise. Unless you have unmanageable debts and can not afford to contribute, you should join your employer pension scheme. Also, some employers make contributions to the pension irrespective of whether the employee does. In this case, you should enrol and take advantage no matter what your financial situation is.

Tax-Free Cash: A quarter of the Pension Pot you build up can be used as a Tax-free Lump sum cash amount. It depends on the rules of the pension scheme and the tax allowances available to you. But let’s say you accumulate £200,000 in your pension pot, you may be eligible to receive £50,000 as tax-free cash. Following the sweeping changes in Pension rules introduced in April 2015, you can also choose how you use the pension if you have a ‘Defined Contribution Pension Plan’. It can be used as a single cash lump-sum or in parts; it can be used as a drawdown plan or as an annuity. If you have multiple pension plans, you can also choose a combination of the above options.

Varied Investment Options: Depending on the type of pension scheme you choose, you can create a diverse portfolio of investments which can grow over your lifetime. Equities, property, funds and bonds, you have multiple options to choose from.

Remember, contributing a part of your monthly income towards your pension may seem like a challenge at the moment, but it has its rewards and benefits. Make small sacrifices today, and it will have a significant difference in the life you lead once you retire.

If you still have questions in mind, you may look at our Complete Pensions FAQ.