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Pensions

Saving for retirement is something that most of us put off because of other commitments. But the reality is that the sooner you start paying into a pension the higher your income in retirement is likely to be. If you're working you're usually building up the right to a basic State Pension – and possibly an additional State Pension – but these may not be enough to give you the standard of living you want. So you’ll need another source of income as well.

This section will help you to understand the benefits of using a pension to save for your retirement, what pensions are available, how they work and how to start saving for your retirement.

What is a pension?

Pensions are long-term investments with special tax rules, for example you get tax relief on contributions. This means that the taxman tops up your contributions so your pension fund is credited with more money than you actually pay in.

You can generally access the money in your pension fund from age 55 and you don’t have to stop working to do this.

Pensions you get from your employer and pensions you start yourself have certain differences. Make sure you understand what's available to you and how they work.

How they work

The way your pension works will depend on the type of pension you have. There are four main types.

Pensions at work

If your employer offers a pension scheme it's a good idea to find out what type it is and how you can join. Your employer makes all the arrangements and may even contribute
to it.

What are the benefits?

Although you don’t have to join any pension scheme offered through your job, it’s often a good idea to join a workplace pension scheme if it’s available because:

  • your employer normally contributes, and
  • you may also get other benefits such as:
    • life insurance that pays a lump sum and/or pension to your dependants if you die while still in service
    • a pension if you have to retire early because of ill health, and
    • pensions for your spouse and other dependants when you die.

The future of pensions at work

Starting from 2012, all employers will have to offer and contribute to a pension scheme to help more people save for their retirement. If you are eligible, your employer will enrol you automatically into a workplace pension (this is called automatic enrolment). This requirement on employers will be introduced in stages from October 2012, starting with the largest employers.

Pensions you start yourself

If you want to start your own pension, you have the choice of starting a personal or stakeholder pension. There are lots of pension providers for you to choose from. You
can go to a provider direct but bear in mind that their representatives may only be able
to advise you on their company's own products, or ones they have adopted from other companies. Alternatively you can get help in choosing a pension and provider from a professional financial adviser – see Getting help.

The Pensions Advisory Service is a not-for-profit organisation that can answer your questions about any pensions, although it cannot give advice about whether or not you should take out a specific pension..

You can compare personal and stakeholder pensions using our comparison tables.

How you're protected

By law, most financial services firms must be regulated by the Financial Services Authority (FSA), the UK’s financial services regulator, before they can do business in the UK. The FSA holds a Register of all authorised firms currently doing business in the UK as well as those authorised in another European Economic Area (EEA) state. Always check that the firm you’re dealing with is on the FSA Register. This means that you will be able to use the complaints and compensation procedures if something goes wrong.

The FSA authorises advisers to give advice on personal and stakeholder pensions (including group personal pensions) and the companies that provide these pensions. The FSA also regulates advice on opting out of a workplace pension in favour of a personal pension or stakeholder pension. But it does not regulate advice about other aspects of employer's workplace pension schemes.

The Pensions Regulator regulates workplace pension schemes. They work with pension scheme trustees and scheme managers, and with employers, to help protect your pension. They do not deal with questions about individual’s pension benefits. You can contact the Pensions Advisory Service for free information and advice on all types of pension queries.

Top tips

  1. Find out whether your employer offers a pension scheme, what type it is and when you can join it.

  2. Don't delay starting or joining a pension scheme – you could end up with a much smaller pension.