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Pension alternatives – what are my options?

Updated 26 October 2021

5min read

Kate Morgan
Staff Writer

Figuring out the best way to save for retirement can be difficult. There are lots of options available, but there’s no one-size-fits-all. Here is everything you need to know about the best pension alternatives and saving for your retirement. 

What is a state pension? 

A state pension is a type of benefit that the government pays to help you cope financially when you retire. The total amount you’re entitled to will depend on how many qualifying years of national insurance contributions you’ve built up. If you’ve racked up 35 qualifying years, you could receive the maximum amount of £179.60 per week (as it currently stands).  

Who qualifies for a state pension? 

Once you start working and earn above £184 a week or are self-employed and earn a profit of over £6,515 a year, you’ll begin to make national insurance contributions. These will collectively go towards your state pension, meaning that you will have a portion of your earnings set aside for your retirement. You will also need a national insurance number before you begin making contributions.  

If you’re out of work or don’t earn enough to qualify, you can make voluntary national insurance contributions to make sure you’re eligible for a state pension. You’ll also accrue qualifying years if you claim certain benefits, such as if you’re unemployed or disabled. There are other alternatives to a state pension, which can be used in place of or alongside any government benefits.  

What is a workplace pension? 

A workplace pension is a private alternative to a state pension. All employers must offer to enrol employees aged 22 or over who earn more than £10,000 a year onto a workplace pension scheme. You can decline if you wish, but you’ll miss out on a tax-efficient way to build a pension pot. Once you’re enrolled, both you and your employer will make contributions, building up the funds throughout your years of service. You can carry your workplace pensions between jobs, meaning that you won’t lose your collective contributions. 

Workplace pensions are an important part of planning for your future retirement. The state pension alone is rarely enough to fund your retirement. Even the maximum is just £9,339 a year – more than £5,000 less than a full-time worker would earn on the minimum legal wage.  

How do I carry my workplace pension between roles? 

Due to auto-enrolment, your pensions will transfer automatically between jobs. Your employers, both new and old, will be able to offer guidance if you need to take any action. It is always a good idea to speak to an independent financial adviser to avoid making any mistakes or losing your precious funds.   

Who doesn’t qualify for pensions? 

Not everyone qualifies for a workplace or state pension, so it’s always a good idea to start thinking about your pension in advance. For example, unlike employees, freelancers are not usually included in workplace pension schemes. Or you may simply choose not to be part of your workplace pension scheme, saving the funds you would’ve contributed elsewhere instead.  

There are a few different retirement saving alternatives and options if a workplace pension scheme isn’t available to you: 

  • ISAs 

  • Self-Invested personal pension (SIPP) 

  • Investments 

  • Assets that can be liquidated into funds, such as property 

What is an ISA? 

One of the most common ways for people to save for their future is an Individual Savings Account (ISA). This is a personal saving pot, and many people use them to save for later life or to buy a house. There are different ISAs, such as cash ISAs, stocks and shares ISAs, innovative finance ISAs, and lifetime ISAs. If you opt for the latter, you won’t be able to withdraw funds from your ISA until you’re buying a home, aged 60 or over, or terminally ill. 

Investing in an ISA is a flexible way to save for your future. You can save up to £20,000 per tax year across a variety of ISAs or one single product, and you won’t have to pay tax on interest or income or capital gains from assets held within it/them. If you’re willing to tie your money up for a set period of time, you’ll generally be able to access better interest rates. But do check with a financial adviser on how best to use your ISAs. 

What is a self-invested personal pension? 

A self-invested personal pension (SIPP) gives you more control over how your pension pot is invested or grows interest. The right option for you will depend on a number of factors, including your appetite for risk, the kinds of returns you’re looking for, how long you have until you retire and whether you’re willing to lock the funds away. If you’re not sure which kind of SIPP product to choose, it’s best to seek professional advice before setting one up.   

How to invest towards your pension 

For those who feel more comfortable with risk, another traditional pension alternative is to invest in stocks and shares, property or other asset classes to save for retirement. There are lots of different investments that an individual could make, such as a buy-to-let property or investing in a commodity like gold.  

Investing in things like stocks and shares and other complex assets isn’t for everyone, but they can deliver high returns. Comparatively, a property investment can offer both a regular income stream and capital growth. However, there will also be continuous costs to maintaining a property, which can eat into the income potential. 

Digital investments 

Technology has changed how many of us live and work, and pensions are not exempt from this. If you’d like to manage your pension digitally and make investments and savings from the comfort of your sofa, PensionBee and Penfold are popular apps for converting savings into pension pot funds.  

Pensions can be difficult to figure out at first, so if you want expert personal advice on saving for your future, you can find your perfect adviser on Unbiased.  

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About the author
Kate has written for leading publications and blue chip companies over the last 20 years.