Pensions advice | Getting more from your work pension


Basic State Pension

You can claim the basic State Pension from State Pension age: currently 65 for men and 60 for women born on or before 5 April 1950. The State Pension age for women born after 5 April 1950 will increase from 60 to 65 between 2010 and 2020.

You can get a basic State Pension by building up enough 'qualifying years'. A qualifying year is a tax year in which you have sufficient earnings upon which you have paid, are treated as having paid or have been credited with, National Insurance contributions.

You don't have to claim your State Pension as soon as you reach State Pension age. You can claim it later and get a higher weekly amount or take the option of a one-off taxable lump-sum payment in addition to the normal State Pension.

Additional State Pension

You may also be entitled to an additional State Pension. For instance, if you're in full-time employment and make class 1 National Insurance contributions.

When you retire and claim for a basic State Pension any additional State Pension due will be added.

If you've been a member of a company pension scheme you may have paid a lower rate of National Insurance contributions which will have qualified you only for the basic State Pension. If you do this, most or all of your second pension will come from your company pension rather than the State Second Pension.

Personal pensions

Personal pensions are available from banks, building societies and life insurance companies, who invest your savings on your behalf.

You can start receiving an income from a personal pension from the age of 50 (increasing to 55 by 2010).

There's no limit on the number of personal pension schemes you can set up, and any contributions you make won't affect your entitlement to the basic State Pension. Non earners may be able to pay into a personal pension.

You can save as much as you like into a personal pension. Each year you'll be able to get tax relief on your pension contributions up to 100 per cent of your earnings (salary and other earned income) subject to an 'annual allowance' above which tax will be charged. In practice this means that for each pound you put into your pension, the government tops up your pension pot using money it would otherwise have taken from you as tax. Read 'Pension rules from April 2006' for further details.

Stakeholder pensions

Stakeholder pensions are a type of personal pension. They have to meet certain government standards to ensure they are good value.

Stakeholder pensions are open to everyone and may be worth looking into if you are self-employed or if your employer doesn't offer a company pension. They allow you to contribute as little as £20 a month. You don't have to be working to contribute to a stakeholder pension, and you don't have to contribute every month if you're unable to.

With stakeholder pensions, you can start receiving an income from the age of 50 (increasing to 55 by 2010). You get tax relief on stakeholder pension contributions – up to the annual allowance described earlier.

Company (occupational) pensions

Company (occupational) pensions are set up by employers for their employees.

In most cases, your employer will make contributions to the scheme on your behalf and require that you make regular payments from your salary.

A company pension may also offer a death benefit, which is paid to your partner if you die before them. Your employer may also provide you with a pension before the normal retirement age of the scheme if you need to retire early due to ill-health.

However, if you leave your employer you are unlikely to be able to continue making payments into the pension scheme.

You get tax relief on your contributions to company pensions – up to an overall annual allowance, as described earlier. Some schemes may offer you the opportunity to carry on working while drawing your company pension.

Group personal pensions through your employer

Some employers offer access to a personal pension scheme. They may also have negotiated lower administration costs with pension providers and make contributions to your pension themselves.

Your employer will usually select a pension provider (for example a bank or life insurance company) and choose a pension scheme which they think will be suitable for their employees. Such an arrangement is called a group personal pension plan (GPPP).

A pension taken out through a GPPP is a personal pension and should not be confused with an occupational pension scheme. You get tax relief on your contributions, as described earlier.

If you decide to leave your employer you may still be able to make payments into your pension, but you may pay higher administration costs.

Pensions for the self-employed

If you're self-employed you make class 2 National Insurance contributions. These will entitle you to the basic State Pension, but not the additional State Pension.

If you want to receive more than the basic State Pension when you retire, you might want to consider starting a personal or stakeholder pension scheme. You'll then be able to make regular payments to build up savings for your retirement.

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