Everyone needs to plan ahead for retirement.

State pensions are only a minimum

The basic state pension paid by the Government will give you a start but it is a safety net, not a retirement plan - it is not generous enough to make you financially comfortable when you stop working. From April 2003 the full basic state pension is just £77.45 a week for a single pensioner.  

People are living longer

Another factor to consider is that people are living longer than ever before.  In 1998 a 65-year-old man could expect to live for more than 15 years on average, while a 65-year-old woman will live for another 18 years.  And this time spent in retirement is projected to increase further.

A pension makes retirement more comfortable

To make sure you have the lifestyle you want in retirement it’s likely that you’ll need another source of income

A private pension is generally regarded as the best option to save for your retirement. 

To encourage you to save for your retirement in a private pension, the Government provides a tax break.  This means that the money you pay into your private pension comes out of your pre-tax earnings.  In other words, the Government ‘tops-up’ your contribution – for every 78p a basic taxpayer contributes to a pension, the Government will add 22p (though there is a limit on how much you can pay in).

And the sooner you take one out, the better.  This is because the earlier you start to save for retirement, the longer your savings have to grow and the easier it will be to get the retirement income you want.

Details about pensions provided by the Government (the Basic State Pension and Additional State pension) and private pension options (occupational pensions and personal pensions, including stakeholder pensions) are given below.

What types of pensions are there?

There are currently four sources of pensions income for your retirement:

State pensions

the basic state pension paid by Government to people who've paid National Insurance contributions while at work;

additional state pension - From 6th April 2002, this is the state second pension. Before that date, you built up SERPS (state earnings related pension scheme) pension. The additional state pension is paid in addition to the basic state pension. The amount you receive is based on your record of National Insurance contributions and your level of earnings as an employee. Many people who are not working because they are caring for young children or, say, an elderly relative or because of disability or long-term illness are also able to build up state second pension (but not SERPS). Self-employed people are not currently eligible to receive additional state pension.

Private pensions

an occupational pension, arranged through an employer's pension scheme.  Often the employer will make a contribution to this form of pension.  Generally this means that you will get a bigger pension than you could get for the same money elsewhere.

a personal pension scheme (including stakeholder schemes) open to nearly everyone and especially useful if you are self-employed or your employer doesn't run a company scheme.

Your contributions (and any contributions made by your employer) form a pension fund, which is invested over the years until you retire.

To find out how much pension you might receive from your savings you should have a look at the Pension Calculator.  This easy-to-use tool can give you an estimate of the amount of pension income you could get when you retire.

Getting started

Pensions can be confusing.  But there’s a lot of information available to help you make sense of it all.

There is a Government website which gives general, impartial information about pensions.  This is a useful starting point if you are trying to decide what to do about saving for your retirement.

The Financial Services Authority (FSA) is an independent body which aims to promote public understanding of the financial system and secure the right degree of protection for consumers.  They produce a number of helpful guides for consumers in their ‘consumer help area’.

Also, if you are considering starting a pension you may find it helpful to look at FSA’s Decision Trees.  These feature questions about your current pension arrangements and circumstances. Answering these questions will help you consider your pension options.

To help you get an idea of what you might receive in from the Government when you retire you can get a forecast for the State Pension that you have built up. 

If you want to find out how much you need to save for a comfortable retirement or you’d like

to learn how much pension your saving is likely to produce, have a look at the Pension Calculator.  This is a simple, easy to use tool that allows you to input details of how much you can afford to save and then calculates the likely pension that this will produce.

Already got a pension?  Need to locate it? Having problems? 

The Pension Schemes Registry can help you find pension schemes you have belonged to in the past.  It has details of almost 200,000 UK pension schemes, and provides a tracing service free of charge. 

If you have a problem with your particular scheme you can contact the Pension Advisory Service for assistance.

The Pensions Ombudsman may also be able to help you if you have a problem with your pension scheme and your pension provider is unable to help you.  The Pension Ombudsman investigates and decides complaints and disputes about the way pension schemes are run.

Information about Stakeholder pensions

The Government has published an impartial guide to stakeholder pensions.  It outlines the things you need to think about before joining a stakeholder pension scheme, and answers questions you might have.

The Stakeholder Helpline is a useful site which provides members of the public with impartial information and guidance on all aspects of stakeholder pensions.

A register of all the companies who offer Stakeholder Pensions is kept by the Occupational Pensions Regulatory Authority (Opra).

Confused? 

The words and phrases used in the world of pensions can sometimes be confusing.  The Plain English Campaign has produced an easy-to-understand A-Z guide to help you understand what they mean.