A Guide To The
Different Types Of
Learn about the different types of pension to help
work out which is best for you.
A pension is a good way to
save money for when you
retire. It’s a pot of money you,
your employer or the
Government pays into.
What is a
What's also great about it is
the taxman doesn't touch it,
meaning a more comfortable
retirement plan for you.
At retirement, you can draw
money from your pension pot
or sell the cash to an insurance
company in return for a
regular income until death.
This is called an annuity.
A pension is an easy way to get the most out of the
money you earn. You may not have the money in
your hand straight away, but it’s a long term
investment plan everyone should think about early in
their careers. Here are reasons to invest in a pension:
Why do I
The Government helps to top up your pension
If you're employed, your employer will
Putting into a pension early on will help you to
live well when your older.
Personal pension arrangements
This is where an individual takes out a policy in their own
name to provide an income in retirement.
Pension arrangements organised by employers
Providing employees with an income in retirement.
Consisting of two elements - the basic state pension and
the State Second Pension or S2P (previously called the
State Earnings Related Pension Scheme or SERPS).
1. Final salary pensions
2. Private pensions
3. Standard pensions
4. Stakeholder pensions
5. Self-invested personal pensions (Sipps)
6. State Pensions
1. Final salary
Final salary pensions are also referred to as defined
benefit schemes. These are largely funded by
employers, although staff sometimes have to pay
With this type of pension, you can get a percentage
of your final salary before retirement, or when
leaving a company, as an annual income.
The percentage will depend on how long you’ve
worked for that particular company. There is
normally an 'accrual rate' set by your employer as a
fraction of your final salary.
Private pensions are pensions that you contribute
to yourself. There are many types you can look to
invest in, some more riskier than others.
This is where you and/or your employer make
regular monthly payments into a pension fund. The
money is then invested with a pension company
until you reach your retirement age where you are
then paid out each month.
These are similar to standard pensions, but have
low and flexible minimum contributions, capped
charges and a default investment choice so you
don't have to make the decision where to put your
5. Self-invested personal
These pensions allow you to choose exactly where
you invest your money.
Investors prepared to look for a scheme themselves
can run a Sipp quite cheaply. These however, can be
a more riskier option to go for.
6. State pensions
A state pension is where you get a small pension
from the Government when you hit the state
retirement age. The basic state pension is currently
£110.15 a week.
You build up entitlement to the state pension by
paying national insurance throughout your working
If you have a complaint about your state pension,
you can get in contact with The Pension
Service (part of the Department for Work and
If you work for a company, a pension could already
be set up for you. Beginning in October 2012,
employers are being forced to offer pensions,
starting with larger firms. The roll out is gradual
with everyone eventually being enrolled by 2018.
You'll be automatically enrolled into a workplace
pension if you are:
Employed (this does not apply to the selfemployed).
Aged 22 or over.
Under the state pension age, which is currently 65
for men and 61 and five months for women,
although this is gradually rising to 65 by 2018.
Earning more than £9,440 a year.
If you decide to opt out, tell your company's HR
department or whoever arranges your pension. You
will be automatically re-enrolled every three years
with the option to opt out each time.
If you’re looking for your own pension, there are
hundreds to choose from and some research is
needed in order for you to get the best deal.
If you do not know too much about finance it’s
usually best to get advice from an independent
financial advisor who will be able to give you good
If you already have a pension plan in place you
Continue to pay National Insurance.
Pay into your pension.
Decipher exactly what's coming and how much
you will be paid when you retire.
Keep a close eye on your fund and review it at
least once a year. If you feel that your
investment could be in a dangerous tailspin, be
prepared to move your pension money into
Certain life events may affect what happens to your
pension savings and the amount of money in your
pension pot. These events include:
Leaving your job
Transferring your pension pot to another scheme
Being unable to work because of ill health
Being made bankrupt
Once the money is in a pension, it can't be
withdrawn as and when you feel like it. You cannot
move it until you're at least 55 when you can take
25% of it as a tax-free lump sum with the remainder
to provide a taxable income for the rest of your life.
If you get approached before you're 55 and get told
you can take more than 25%, it's a scam known as
If you're concerned there might be something
wrong with your pension scheme or the way it's
managed, there are organisations that can help.
It's a good idea to get advice before taking any
Complaints about Small Self-Administered
Schemes (SSASs), Executive Pension Plans (EPPs)
and Group Personal Pension Plans (GPPs) are
considered by the Financial Ombudsman Service.
You can make a complaint against pension
arrangements organised by employers if you feel
the advice given to start a pension scheme was
unsuitable, the benefits paid have been incorrectly
calculated or misrepresented, or the money
invested in the pension scheme has tied up capital
If you feel you have suffered personal injustice,
hardship or financial loss because of the action or
lack of action of a particular organisation, you can
make a complaint against them.
You must show that you've tried to resolve your
dispute with the company in question before taking
your complaint any further and you'll need to
provide written evidence of this. These types of
complaint should initially be referred to
the Pensions Ombudsman.
If your complaint is made against an independent
financial adviser (IFA) the pensions complaint
should be referred to the Financial Ombudsman
If you feel you need additional advice and
assistance, you can also contact The Pensions
Advisory Service who can provide advice on a range
of pension issues.
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