If you’re just beginning your journey as a working adult, you may have heard the term ‘pension’ be thrown around from time to time, whether from your colleagues or family and friends who’ve been part of the work force for longer. What exactly is it, and why is there so much discussion around it?

A pension simply refers to an investment plan that will result in you receiving a monthly salary – or you could think of it as a pre-budgeted allowance – once you retire. You may begin to contribute to your ‘pension fund’ by discussing and agreeing on a pension plan with your employer, who will write you cheques which are separate from your monthly salary, solely intended to be invested in your fund. The amount received will depend on your salary, age, and the number of years you’ve worked for the company, e.g. 1% of your average salary over the last five years multiplied by the total amount of years you’ve been employed.

Note that a pension plan is different from another popular form of retirement funding, a 401(k) plan， which is a retirement account an employee may open for the purpose of building a retirement fund. The employer splits a portion of your salary to be put in this account, sometimes helping by investing an additional portion matching your own investment.

The key difference between a pension plan and a 401(k) is that a pension plan is funded by the employer, while a 401(k) is mostly incentive for you to save, and employers aren’t required to contribute to your fund.

So why the buzz over pension plans? While there may be a host of reasons, we’ve narrowed it down to 5 main factors that may be popularizing pension plans. Again, it is important to remember that while we may point out pros and cons that sound right for your needs, having an experienced, professional advisor to fully analyze your portfolio will always provide more in-depth information that will help you make more informed decisions.

1. Government enforcement

While first introduced in 2012, every employer has been legally bound to provide a pension plan for their employees just starting in 2018. This may be one of the most impactful – and obvious – reasons on this list.

2. Flexibility

In the early days of pension plans, accessing your pension fund came with severely limited options, not to mention losing a majority of your unspent pension upon death. These days, however, options have become much more plentiful and accommodating. They include:

• The ability to withdraw as you like from your funds beginning at the age of 55. Note that while up to 25% is usually tax free, anything greater will result in being income taxed
• Choose how you want your fund invested, whether you’d like to receive secure income for the rest of your life, or if you’d like to withdraw it all in a lump sum
• You may even withdraw as multiple lump sums or take income over a period of your choosing if you invest your fund
• Your beneficiary will receive the remainder of your pension tax free upon your passing, and complete control over your funds will be transferred.

It’s important to remember that regardless of how much control you have of your funds, your invested pension plan will, like any other investment, come with some risk. The potential for your pension to grow is as great as its potential to lessen in value. While there are rules in place to allow the withdrawal of some pension funds tax free, you should be knowledgeable of the limits, as chances are that any higher withdrawal will be taxed.

Additionally, pension rules may change as time goes on, so it’ll be important to be aware of any updates, changes, or additions to rules governing pension funds.

3. Greater knowledge

With pension plans having been in place for a while now, awareness has also increased. In fact, the U.K. government provides free guidance in the way of a service called ‘Pension Wise’. From learning about the various options and their tax rates to how to get started, they’ll sort you out.

Simply call 0800 138 3944 or navigate to www.pensionwise.gov.uk to inquire and initiate any required services.

4. Technological advancements

In recent years, E-banking has become the norm, with the ability to access and monitor any incoming our outgoing traffic to your bank account right from your computer or mobile device. No more will you have to wait for weeks at a time to get an update on your bank and its funds via snail mail.

Technology has opened the doors to nigh-on-immediate access to information, including that of your finances and investments. Review your financial performance, your pension, and more, with just a few taps of your finger. This immediate access and greater control offered through online and mobile services gives individuals greater confidence in pension plans and the like.

5. Long term planning

More and more people are becoming mindful of their financial situations, leading all the way into seniority, and retirement. Whether a result of wanting greater access and control over their finances, or done in order to create long-term solutions and investments for a more comfortable retirement, this awareness is great.

Being able to depend on your own finances will always be better for you, as you won’t have to rely on state pension (£8,750). Access to state pensions are already quite limited, and if past trends are anything to go by, will become even more limited. For example, state funds once were accessed at the age of 60 for women and 65 for men, but has already risen to 65 for women, and has already been confirmed to rise further to 66 for both men and women. News of an additional rise in 2028 has already come out.

Employers are also becoming less generous with their pension plans, sacrificing the grand total amount of your pension fund for greater control and access to it. While this comes with pros and cons, it is always of utmost importance to discuss with your employer in detail about your available options.

If you’re unsure how to proceed, or how to get started, 10X Wealth Management can put you on the right path. Our industry-leading experts promise comprehensive analysis of your financial portfolio, and will provide insights and knowledge so you can make the best choices for your future.