What type of pension is right for you?
Most people will receive a pension from the government when they hit state pension age, currently 65, but not everybody will get the same amount. How much you receive will depend on the National Insurance (NI) contributions you make during your lifetime, with 35 “qualifying years” required to get the full amount.
Carers and non-working mothers sometimes fall through the net but can now claim NI credits to top up their pension.
All those who retire after 6 April 2016 will get the new state pension. This is worth up to £155.65 per week although again, how much you get will depend on your NI contributions.
There is a safety net in the shape of pension credit, which tops up low earnings to a guaranteed weekly minimum, currently £155.60 (for single people) or £237.55 (for couples).
In 2020 the state pension age will rise to 66 for everybody. It will then rise again to 67 between 2026 and 2028, with further increases to come.
The state pension is only a bare minimum and you will need your own savings to ensure a comfortable retirement.
Read more: How to top up your state pension
The attraction of a company pension is that most employers will top up your contributions, paying in around 3% or 5% of your salary.
There are two main company pension schemes:
- Final salary (also known as defined benefit)
- Money purchase schemes (also known as defined contribution schemes)
Of the two, final salary schemes are more attractive because your pension is based on how much you earn and how many years you are in the scheme. Sadly most are now closed to new members as they are expensive to run.
You should still join, however, especially if your employer makes contributions, otherwise, you are essentially turning down free money.
The money in your company pension is yours even if you move to a new employer, and most will have several schemes over their working lives.
Read more: How to check how much pension you have
The government-backed auto-enrolment scheme aims to give millions of low-paid workers a workplace pension.
Workers over 22 who earn more than £10,000 a year and aren't already in a company scheme are automatically enrolled, with contributions deducted from salary.
You are free to opt out but again, this means turning down free money, as you will lose out on a company top-up and tax relief.
If you don't have a company pension or want to top up your retirement savings you can take out a personal pension, sold by independent financial advisers, insurance companies and stockbrokers.
Flexible self-invested personal pensions (Sipps) are particularly attractive as you can invest in shares, funds, property and cash, taking full control of your investments.
The big attraction is that you get tax relief on your contributions, at either 20, 40 or 45 percent, depending on your tax bracket.
You can withdraw money from your pension from age 55, with 25 per cent of any withdrawal free of tax.
Consider taking independent financial advice to decide which is the best way for you to save.