Pensions
Welcome to my pensions area! You can find all of my articles for pensions as well as links to my free pension tools.
What is a Pension Annuity?
A pension annuity is a financial product that converts your pension pot into a guaranteed, regular income for life (or a set period). Essentially, when you buy an annuity, you’re exchanging your lump sum pension savings for a steady stream of income. The amount you receive depends on a variety
What is Pension Drawdown?
Pension drawdown is a retirement income method that allows you to withdraw money from your pension pot at times that suit you while keeping it invested (after you have taken the 25% tax free lump sum up to a maximum of £268,275), rather than purchasing an annuity, which is a
The UK Pension System Explained
The UK pension system is designed to provide financial support for individuals in retirement. It’s mainly divided into three parts: the State Pension, Workplace Pensions, and Personal Pensions. Here’s an overview of the rules and amounts for each: State Pension The State Pension is provided by the government to people
Defined Benefit vs Defined Contribution Pensions
Defined Benefit vs Defined Contribution Pensions: What’s the Difference? When it comes to retirement planning, two of the most common types of pension plans are Defined Benefit (DB) and Defined Contribution (DC). These are two different vehicles to take you towards retirement. These two types of pensions offer different benefits
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WHAT IS A PENSION AND WHO IS IT FOR?
Think of a pension as a pot of money that grows while you work so you can enjoy life when you stop working.
What Is a Pension, Really?
A pension is simply a way to save money while you’re working so you have cash to live on when you retire. It’s like a special savings account that comes with some nice tax benefits and is designed to be opened when you finish working.
When you put money into a pension, the government adds a bit extra through tax relief. This means your pension grows faster than a normal savings account would.
Your pension money gets invested in things like shares (little pieces of companies) and bonds (loans to companies or the government). This helps your money grow over many years.
Why Pensions Matter
We’re all living longer these days. Many of us might spend 20-30 years in retirement. That’s a long time to live without a regular paycheck!
The State Pension helps (currently about £11,500 per year), but it’s often not enough to give you the lifestyle you want. Your own pension gives you extra money on top of this.
Starting a pension early makes a huge difference. Even small amounts can grow into large sums over time.
Types of Pensions in the UK
There are three main types:
1. Workplace Pensions
These are set up by your employer. Since 2012, employers must put eligible workers into a pension scheme and pay into it too. This is free money you shouldn’t miss out on!
2. Personal Pensions
You set these up yourself. They’re good for self-employed people or if you want to save extra beyond your workplace pension.
3. State Pension
This is paid by the government once you reach State Pension Age (currently 66, but rising). You build up your State Pension by paying National Insurance while you work.
Who Are Pensions For?
Short answer: Everyone who plans to stop working one day.
But let’s break it down by age:
In Your 20s
Starting now is your secret weapon! Even small amounts benefit from decades of growth. Thanks to compound interest (when your money earns money, which then earns more money), your early contributions are super powerful.
In Your 30s and 40s
Life gets busy with mortgages and maybe children. But don’t put pensions on the back burner. This is when your earning power often increases, making it a great time to boost your contributions.
In Your 50s
Retirement is getting closer. Now’s the time to check if you’re on track and possibly increase your savings. You might also think about when and how you want to access your pension.
Self-employed
Without an employer pension scheme, it’s especially important to set up your own pension. You still get tax relief, making it one of the best ways to save.
When Can You Get Your Pension Money?
Most private pensions let you access your money from age 55 (rising to 57 in 2028). You can usually take 25% as a tax-free lump sum, with the rest providing income for your retirement.
Starting Is Easier Than You Think
Many people put off pensions because they seem complicated. But the hardest part is getting started. Once your pension is set up, it looks after itself mostly, growing quietly in the background while you get on with life.
Remember: The best time to start a pension was when you began working. The second best time is today.