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Pensions and retirement planning
How pensions work
Pensions are a form of saving for retirement, with some tax advantages. When you retire, or reach a certain age, a pension scheme pays you a regular income for life. The government simplified the pension rules from April 2006 to make this saving easier and more flexible.
Types of pension
A pension is a way to save for your retirement. There are currently three main types of pension: State, personal, and company (or 'occupational').
State Pension
The amount of basic State Pension you'll receive will depend on the amount of National Insurance contributions you've paid or are treated as having paid. Depending on your individual circumstances, you may also be entitled to additional State Pension.
The State Pension is payable from State Pension age – 65 for men, 60 for women born on or before 5 April 1950. The State Pension age will increase for women born after 5 April 1950 from 60 to 65 between 2010 and 2020 and then for both men and women from age 65 to 68 between 2024 and 2046. You can also put off claiming State Pension for up to five years.
Look at the following page to find out more about taking up your State Pension later on.
Company pensions
Company pensions are set up by employers to provide pensions for their employees on retirement. If you are able to join one, it's worth considering as most people will be better off in retirement than if they had not joined.
Personal pensions
Personal pensions are available from banks, building societies and life insurance companies, who invest your savings on your behalf.
Under HM Revenue & Customs rules you can start receiving your pension from age 50 (increasing to 55 by 2010). You can also take part of your pension fund as a tax-free lump sum.
In April 2001, the government introduced 'stakeholder pensions', a new type of personal pension scheme designed to be secure, flexible and good value for money.
Tax relief on personal and company pensions
The government encourages you to save towards your pension by giving 'tax relief' on money you put into personal and company pensions schemes up to certain limits. In practice this means that money you would have paid in tax is used towards your pension pot instead.
If you're not a taxpayer you can still get tax relief on your (or someone else's) contributions to your personal pension, up to a certain limit.
Getting help and advice on pensions
Some organisations offer free information and help with understanding pensions. However, before taking out a pension it's a good idea to talk to an authorised financial adviser.
