This information applies to England, Wales, Scotland and Northern Ireland
There are several types of pension which may be available to you. These include:-
If you want advice on which type of pension to choose you should consult an independent financial adviser or one of the organisations listed at the end of this item.
For more information on how to obtain financial advice you should consult an experienced adviser, for example, a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.
The basic state retirement pension is a flat-rate pension paid to anyone who has enough national insurance contributions or credits when they reach state retirement age. This is currently 60 for a woman and 65 for a man. This will change from 6 April 2010 because the age difference between men and women is gradually being equalised and the retirement age for both men and women is gradually being increased.
If you want to check when you will reach state pension age, there is a state pension age calculator on the Directgov website at: www.direct.gov.uk. The basic state retirement pension will only be paid in full if you have paid, or been credited with, contributions during most of your working life.
If you have not paid sufficient contributions to qualify for a pension in your own right you may be able to get one based on a spouse or civil partner's contributions.
For more information, see Benefits for people over sixty.
Additional pension is also known as state second pension and was previously known as SERPS (State Earnings Related Pension). All employees have to contribute towards additional pension unless they make alternative arrangements by contributing to an occupational or personal pension scheme which is contracted out of additional pension. Additional pension is paid on top of the basic state pension.
From 6 April 2002, if you are working and haven’t claimed state Retirement Pension, you accrue additional pension under a scheme called the state second pension (S2P). From 1978 to 2002 additional pension was accrued under SERPS.
However, if you are or were ‘contracted out’ of the additional state pension scheme and contributing to an occupational pension, a stakeholder pension or personal pension scheme, you will not accrue any additional pension for the period you are contracted out.
From 6 April 2002, people who are carers or long-term disabled may also accrue a right to additional pension even though they are not employees.
If you're contracted out of state second pension (S2P), you may want to check that you made the right decision. Some older people are likely to be financially worse off by contracting out. To find out more about contracting out of S2P, see the leaflet produced by the Government financial watchdog the FSA: The State Second Pension – should you be contracted out?.
A very small number of people above a certain age, were wrongly advised to opt out of SERPS between July 1988 and April 1997. If you are in this group of people, you could be entitled to compensation. To find out more, see the FSA leaflet: The State Second Pension – were you wrongly advised to opt out?
If you paid special graduated contributions on earnings between 1961 and 1975, you may be entitled to a graduated pension (also known as graduated retirement benefit). You can get this even if you are not entitled to any basic state Retirement Pension. However, the amounts of graduated pension are small, so you may get a lump-sum payment instead of weekly payments.
If you do not claim Retirement Pension at 60 or 65, you will earn extra pension. If you have already claimed your pension, you can cancel the claim in order to earn extra pension later on, but you can only do this once.
Interest will be paid on the pension you do not claim so that you receive more money when you make your claim at the later date. This will be paid either as an increased weekly rate of state Retirement Pension, or you can get it as a lump sum on top of your normal weekly pension. Waiting to claim your Retirement Pension is known as deferring your pension.
You can get more information about deferring your pension from the Pension Service website at www.thepensionservice.gov.uk or you should consult an experienced adviser, for example, at a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.
Occupational pension schemes are set up by employers to provide pensions and life assurance benefits for employees, for example, a tax-free lump sum payable if they die before retirement to their dependant(s). From 6 April 2001, some employers may set up stakeholder pension schemes. Such schemes will be subject to the same conditions as other occupational schemes, as well as the general conditions for stakeholder personal pension schemes - see under heading Types of pension.
There are two main types of occupational pension scheme:-
As an employee you have the right to leave, or decline to join, an occupational pension scheme. If you are thinking about leaving an occupational pension scheme, you should consider the implications of this very carefully, because an occupational pension scheme will usually be far more advantageous than a personal pension scheme. In addition, an occupational pension scheme may be reluctant to allow you to return to the scheme after you have left to take out a personal pension. If you decide to leave, or decline to join, an occupational pension scheme, you will then have to contribute towards additional pension or a personal pension.
If you are thinking about leaving a personal pension scheme, you should get independent financial advice first. You can find information on how to get independent financial advice on the pensions page of the Financial Services Authority website at www.moneymadeclear.fsa.gov.uk.
The occupational pension scheme may be contracted out of additional pension, which means you will not pay contributions into additional pension and will only be entitled to a basic state retirement pension plus an occupational pension on retirement. If the scheme is not contracted out of additional pension you will continue to pay into additional pension and will be eligible for the basic retirement pension plus additional pension plus an occupational pension on retirement – see under heading State retirement pension.
The Pension Protection Fund was set up to provide help if your employer has gone out of business and its pension scheme can no longer afford to pay you your pension.
If you are in this position, you can find more information on the Pension Protection Fund website at: www.ppf.gov.uk.
You can take out a personal pension (including a stakeholder pension - see under heading Types of pension) whether you are employed or self-employed. You can also take out a personal pension (including a stakeholder pension) if you are unemployed. To take out a personal pension, you must be aged between 18 and 75. You can also take out a stakeholder pension on behalf of a child.
If you are an employee who is a member of an occupational pension scheme, you may be able to take out a personal pension as well. From April 2006, you can save as much you like into any number of pension schemes. This applies to both personal and occupational schemes. There is no upper limit to the total amount of pension savings that you can build up, although there are limits on the amount of tax relief you will get.
For more information about how to get independent financial advice on personal and occupational pensions, visit the pensions page of the Financial Services Authority website at www.moneymadeclear.fsa.gov.uk.
A personal pension scheme will provide one or more of the following benefits:-
A personal pension scheme may be contracted out of additional pension. This means that you do not pay contributions into additional pension and will not receive a top up to your basic state retirement pension (see under heading Types of pension) unless you are entitled to additional pension from another employer. If the pension scheme is contracted out of additional pension, HMRC will make contributions into the scheme.
If the pension is not contracted out of additional pension, you will continue to pay contributions into additional pension and will be entitled to a top up to your basic state retirement pension in addition to your personal pension.
A stakeholder pension is a low-cost pension which has to meet certain standards and conditions, for example, the pension provider cannot charge more than 1% of the value of the individuals fund each year for administering the pension. It will also have to meet the same conditions as other personal pensions (see below).
For some people a stakeholder pension may be a better option than other personal pensions. Stakeholder pensions offer greater flexibility than other personal pensions, for example, you can stop paying into the scheme without having to pay a penalty and restart whenever you wish. You may also be able to vary the timing and amount of your payments to the scheme.
Stakeholder pensions are available from personal pension providers, for example, insurance companies, banks and building societies. Other organisations, for example, trade unions and the Post Office may also offer stakeholder pension schemes to their members. If you are employed, you may be able to get a stakeholder pension through your employer. You can also choose to join a different stakeholder pension scheme to the one offered by your employer.
As an employee you will not be able to join a stakeholder pension scheme offered by your employer if you:-
An employer must offer a stakeholder pension scheme to their employees, unless the employer:-
TPAS provides an advisory service on both occupational and personal pensions. Advice is given through a network of voluntary unpaid professional advisers. The service is free and confidential. TPAS can:-
TPAS also gives information and advice about stakeholder pensions, including questions about the decision trees produced by the Financial Services Authority - see below.
TPAS does not give financial (investment) advice, for example, which personal pension provider provides the best pension. If you require this level of advice, you will need to contact an independent financial adviser.
You can get more information about TPAS from:
11 Belgrave Road
London
SW1V 1RB
Helpline: 0845 601 2923 local rate
E-mail: enquiries@pensionsadvisoryservice.org.uk
Website: www.pensionsadvisoryservice.org.uk
Stakeholder website: www.stakeholderhelpline.org.uk
The Financial Services Authority (FSA) regulates the financial services industry in the UK. It also provides basic information and advice about a range of financial services, including pensions. On the FSA website there are guidelines to help you work out if a stakeholder pension would be right for you. You can also get information about how much you need to save to have the retirement income that you would like, by using their retirement income calculator at www.pensioncalculator.org.uk.
The FSA can be contacted at:-
Financial Services Authority (FSA)
25 The North Colonnade
Canary Wharf
London E14 5HS
Tel: 020 7066 1000
Fax: 020 7066 1099
Public enquiries helpline and leaflet-line: 0845 606 1234 (local rate)
Email: consumerhelp@fsa.gov.uk
Website: www.moneymadeclear.fsa.gov.uk
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