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Why have a pension
This information applies to England, Wales, Scotland and Northern Ireland
About why have a pension
A pension is money you'll use to live on when you retire. Most people get a State Pension but this only provides for your basic needs. To make sure you have the standard of living you want in your retirement it's best to save in a pension scheme.
This page gives you basic information about:
- why its important to start a pension as soon as you can
- how pensions work
- changes to pension rules that are coming up.
To find out where you can get more information about pensions, see Further help and information.
Why you'll need a pension
Everyone needs money for their retirement, to support you and give you a decent standard of living. You may also need to support a partner or other people in your family.
These days, people live longer so your pension will need to last you longer. This means you'll need to try and save more.
Many older people live in poverty because they haven't been able to save enough. The help offered by the state can change over time. If your retirement's a long way off you shouldn't assume that all your needs will be covered by state benefits, or that State Pension rules will be the same as now. So it's best to start putting some money away as early as you can.
How pensions work
You put aside money during your working life into a pension fund. When you reach retirement age, you get your pension to live off for the rest of your life. The amount you get will depend on how much you have saved. This is why it's important to start a pension as soon as you can.
There are several ways you can save for a pension. Your employer may offer a workplace pension scheme or you can take out a personal pension through an insurance company. You may do both during your working life.
Whichever way you choose, pensions basically work like this:
- you, and sometimes your employer, pay money into your pension on a regular basis
- the money you pay in is invested so that the pot of money (fund) can grow
- when you reach retirement age, you get your pot of money to live off for the rest of your life. Usually, you will get a regular income but you may also get a lump sum, depending on your scheme.
For more information about how workplace pension schemes and personal pensions work, see Types of pension.
As well as paying into a pension scheme, you'll also be paying National Insurance Contributions throughout your working life. This builds up your entitlement to the State Pension. You can get this on top of any workplace or personal pension you save for.
You can get basic State Pension even if you can't work or don't have another type of pension.
For more about how State Pension works, see State Pension.
When to start a pension
It's best to start a pension as soon as you start earning, if you can. If you're young, it's tempting to think that pensions are for older people. But the earlier you start, the longer you'll have to put money away. You may also have more options later on to retire early. People who leave saving till later in life can end up with smaller pensions or have to work longer to make up the money.
Starting work
Find out whether your employer offers a pension scheme, what type it is and when you can join it.
Don't delay starting or joining a pension scheme – you could end up with a much smaller pension than you need.
For more about getting a pension through your work, see Workplace pensions.
Changes to pensions rules
The government is planning important changes to how pensions work over the next few years.
Changes to the State Pension rules will start taking place from April 2010.
Changes to the rules about how much you can save in a workplace or personal pension will start taking place from April 2012. You can find more information about these changes on the Directgov website. Go to: www.direct.gov.uk.
There will be lots of publicity from the government about the changes, including adverts on TV and radio and in the local press. We will update these pages and highlight the changes as they happen.
Pension changes will affect every adult whether or not you are working at the moment. It's important that you understand what the changes mean for you and keep up to date with what's happening.
You can keep up-to-date with news about the changes on the Directgov website. Go to: www.direct.gov.uk.
If you have any questions about the changes or anything else to do with the State Pension or other types of pensions, you can get free help and advice from a Citizens Advice bureau. To search for details of your nearest CAB, including those that can give advice by e-mail, click on nearest CAB.
Further help and information
On Adviceguide
For more information about pensions, see Pensions.
You may also find the following Adviceguide information helpful:
- Getting financial advice
- Savings
- Borrowing money
- Help with debt.
The Money Advice Service
The Money Advice Service is a free, independent service. Their website has lots of useful information about pensions including comparison tables for choosing a personal pension provider and a pension calculator for working out how much pension you'll need. There's also a range of leaflets to help answer your pensions and retirement questions.
Go to: www.moneyadviceservice.org.uk.
Directgov (in England, Wales and Scotland)
Directgov is the government website. It has lots of information about the state pension and other types of pensions, saving for your retirement and the changes to pensions that will be happening from 2010 to 2012. Go to: www.direct.gov.uk.
Nidirect (in Northern Ireland)
Nidirect is the official government website for Northern Ireland citizens. It has lots of information about the State Pension and other types of pensions, saving for your retirement and the changes to pensions that will be happening from 2010 to 2012. Go to: www.nidirect.gov.uk.
The Pensions Advisory Service (TPAS)
Helpline: 0845 601 2923
Website: www.pensionsadvisoryservice.org.uk
TPAS is an independent organisation that provides free information, advice and guidance about all types of pensions including state retirement pension, occupational, personal and stakeholder schemes.
TPAS doesn't provide financial or investment advice or recommend products.
