Pensions

A pension is where a person receives a regular payment, usually when they retire, so that they do not have to work or rely on the income from working. A retirement plan is usually developed to achieve this.

The UK government pays a state pension but it is important that you make other preparations for your retirement as relying on a state pension could mean a dramatic drop in income for you.

Developing a retirement plan as soon as possible is a good idea as any delay can make a significant difference to the amount you will have to live on when you retire.

A pension can be received in a number of ways. You can receive regular pension repayments when you reach retirement age (or your widow/widower can receive these), a tax free lump sum of up to 25% of your pension fund, or should you die before retirement, your dependants would receive a lump sum.

To ensure that you do not spend your pension in one go when you reach retirement, you must purchase an annuity. This ensures that you receive a regular income. Although you have not had to pay tax on your pension fund you will have to pay tax on any income from an annuity.

Personal Pension
One of the main types of UK pension is a personal pension. Basically this involves making regular payments to a pension provider who will invest your money. There are a number of different forms of personal pension such as stakeholder pensions and SIPPs.

Stakeholder Pension
A stakeholder pension was introduced for people who have limited pension options, so you can make contributions to one even if you are unemployed. It is also possible to take out a children's stakeholder pension.

The features of pensions are entirely dependent on the pension provider and we would recommend that you seek advice from a financial adviser before taking out any retirement plan.

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