Pensions
Although retirement may seem a long way off, planning for it now may make a big difference in the future and help to give you the income you want when you retire.
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| A pension is a source of regular money to live on when you retire. You set up a type of savings account called a pension scheme - one of the most tax-efficient ways to save money. Everyone needs money to live on when they retire. In fact, retirement could make up as much as a third of your life. So, you will need money for your increased leisure time and you may still need to cover costs such as rent, or your mortgage if you haven't paid it off in full. |
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.
There are currently three main types of pension:
State,
personal and
company (or 'occupational').
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 (this will increase for women born after 5 April 1950 from 60 to 65 between 2010 and 2020) – but you can put off drawing it for up to five years.
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 taking your pension from age 50 (increasing to 55 by 2010) and to 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.
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.
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. But remember, if you see a financial adviser you may have to pay for their advice. Financial advisers must keep to rules that are laid down by the Financial Services Authority (www.fsa.gov.uk/). You need to decide whether you want to consult a financial adviser. And if you do, make sure you understand, and are happy with, the advice they have given you before you go ahead with their recommendation.
Directgov - how pensions work (www.direct.gov.uk/en/MoneyTaxAndBenefits/PensionsAndRetirement/BeginnersGuideToPensions/DG_10026905)
Saving for retirement (www.savingforretirement.co.uk/Pension-Basics-159_1.html).