There are three major pension routes and most people fund their retirement through a combination of one, two or all three of these types.
These are arranged for you by your employer and are sometimes called ‘company pensions’ or ‘occupational pension schemes’ and you automatically pay a percentage of your salary into the scheme every payday. In most cases, the amount you pay is then topped up by a contribution from your employer, as well as tax relief from the government. The phased introduction of automatic enrolment since 2012 has now resulted in companies enrolling the vast majority of their staff into a workplace pension.
You arrange these yourself and they are sometimes called ‘defined contribution’ or ‘money purchase’ pensions. Basically, you pay a portion of your earnings into your pension pot which, along with tax relief, is then placed by your pension provider into a range of investments, such as shares or bonds. The amount you ultimately receive in retirement will depend upon: how much you pay into your pot; the performance of your investment fund; the administration fees charged by your provider, and how you ultimately take your cash.
The State Pension:
This is a weekly payment from Government for people who reach State Pension age. Entitlement is built up by either paying or being credited with National Insurance contributions (NICs) during your working life. To qualify for the new full State Pension (£159.55 per week in 2017/18, £164.35 per week in 2018/19) you need a 35-year NICs record.