When you find this article, you might have heard or read many stories before about establishing a retirement saving account as early as possible. You might wonder whether it is true and whether it is possible to start collecting funds for your pension when you are still young and have a lot on your bucket list. You can use a pension transfer value calculator to help you get a clearer image of it. If you start it early, you can save more money for your golden years. However, not all investment instruments are the same. You need to have a great comprehension of the right investment option that can help you achieve your retirement goals.
When you work for a company, your employer may offer you a pension plan that is organized by the corporation. Although it can bring a significant benefit, you may have limited access to your account if you are registered to your company pension scheme. If that is the case, your investment portfolio can’t easily be managed based on your plan and strategy. Therefore, many people will rather invest in a defined contribution pension plan, as it allows them to be more liable for their retirement funds. If you are already registered to a pension scheme or have no idea what kind of pension plan to choose, keep on reading this article to learn more about the existing investment options: defined contribution and defined benefit pension plan, and how the two options may differ from one to another.
1. Defined Benefit Pension (DB)
This pension scheme is usually established by the company. It guarantees you a profit that has been specified to be obtained by you once you retire. The economic advantage is usually defined according to the average amount of your basic salary and the period of your employment in the organization. As a result, you are not able to independently increase the value of your investment. a defined benefit pension is generally adjusted to match the inflation rate.
2. Defined Contribution Pension (DC)
Different from the DB pension, the DC pension relies on the number of funds you have saved in your pension pot and how much it has accumulated over the years. This scheme can be arranged by you or the company you work for. With this option, the growth of your pension fund will be affected by the ups and downs of your investment performance. But you can significantly improve your portfolio because you have the overall authority over your DC pension. You can decide whether you will invest more money in your pot or let it sit as it is while waiting for the right timing in the market to add more contribution.
Whether you choose a defined contribution vs defined benefit pension plan, if you already possessed one of them, it is still possible for you to transfer your funds to the preferred pension scheme. Many pension providers will help you to convert your DB pension to a DC pension plan. Before going ahead with the transition, it is highly recommended to ask for some financial advice from a reliable pension transfer specialist.