Pensions

Why have a pension?

A pension is to provide an income once you have retired. Although there is the State pension, some people may not find this enough to live on and enjoy a few little luxuries in life. The earlier you start to contribute to a pension scheme, the better off you will be on retirement. Even a short delay can make an impact on the amount you will receive.

What is the State Pension?

The basic State Pension depends on the number of years you have paid or been treated as paying National Insurance contributions. The basis state single pension for 2008/09 is £:90.70 per week and if a couple have both paid full National Insurance contributions they will both be entitled to the £:90.70. If not, the payment for a couple is £:145.05 per week (2008/09). There are also additional benefits you may be entitled to such as pension credit and housing credit.

What types of pensions are there?

There is a wide variety of pensions available but are generally split between company pensions and personal pensions.

Company pensions schemes are provided by an employer and are known as occupational pension schemes. 'Defined benefit' or 'final salary' schemes provide benefits based on how long you have been in the scheme and your final salary at retirement. 'Money purchase' or 'defined contributions' schemes are dependent on how much was paid in and how well the funds invested have performed.

Many company pension schemes operate as Group Stakeholder or Group Personal Pension plans now and provide flexibility in allowing you to take them with you if you move jobs. Although set up by the employer, they belong to you and are dependent on how the investments perform.

This is a way of providing an income after retirement and should be considered if you don't have access to a company pension scheme. The fund is used to buy a regular pension income for the rest of your life known as an annuity. It is also possible to receive part of the pension fund as a tax free lump sum but means you get a lower annuity.

How much should I pay in?

This depends on how much you can afford and what level of income you want when you retire. It is possible to increase contributions as your salary increases.

It is important to remember that the value of the fund is not guaranteed and therefore could fall as well as rise. So the value of the fund at retirement could be less than paid in.

When can I retire?

You can claim State Pension at 65 for a man or 60 for women but this is increasing gradually over the next 12 years to eventually being 65 in 2020. In a company pension scheme, the age is dependent on the scheme but is usually 60 to 75 although some schemes may allow earlier retirement than this. For personal pensions it is currently between the ages of 50 and 75 although this is changing to 55 from 2010.

As pension plans can be complex, whether you are setting up your first pension or looking to transfer a current pension it is advisable to talk to a financial expert to find the right solution for you.