Pensions

Pensions – we've all heard of them but it can sometimes be confusing to understand what they are, what they do for us and why we need one. Here’s an overview of what they are, what they do, and the choices and options that might be right for you.

State Pension

The State Pension is a regular payment from the Government that most people can claim when they reach State Pension age.

Personal Pensions

Personal pensions are pensions that you arrange yourself. Two of the most common types are – stakeholder pensions and self-invested personal pensions (SIPPs).

Personal pensions are a type of defined contribution (money purchase) pension. Some employers offer personal pensions as workplace pensions.

You build up a pension fund by investing your and/ or your employer’s contributions with an insurance company. The money you’ll get from a personal pension usually depends on how much has been paid in and how the fund’s investments have performed.

Workplace pensions

A workplace pension, sometimes known as an ‘occupational’ or ‘company’ pension, is set up by an employer to provide retirement benefits for its employees. The most common types of workplace pension are defined contribution (money purchase) and defined benefit (final salary) schemes.

With a defined contribution scheme, you and/ or your employer make contributions to the pension during your period of membership. The contributions build up, along with investment returns to provide you (the pension scheme member) with a pot of money that you later use to generate a retirement income.

A defined benefit pension pays a retirement income based on salary, length of employment and a calculation made under the rules of the pension scheme.

When can I take money from my pension?

When you can take money from your defined contribution pension will depend on your pension scheme’s rules, but you can normally start taking benefits from age 55.

It’s worth finding out if you have a ‘Normal’ or ‘Selected’ retirement date under your scheme. This will likely be later than age 55, and if you take benefits before this date your benefits you may be subject to an early retirement reduction or penalty.