Basic Pensions Guide

A Basic Guide to Your Pension

Having a healthy pension is becoming more important as it becomes clear that we are living longer and saving less.

Saving for your pension is a well-covered subject in the personal finance pages and on the television and radio. It's an important subject, but a complex one, and it's this complexity that often puts people off thinking about how their pension arrangements are going to work, or even having a pension in the first place.

What Is A Pension?

A pension is a sum of money that is paid to you on a regular basis once you have stopped working. The amount of pension you receive on retirement is largely based on the amount you have saved and the length of time you have saved for. In addition, because the majority of pension funds are invested in the stock market, the value of your pension can also depend on the management of your pension fund during the time you are paying into it.

How Do I Start A Pension Plan?

If you work in a company that has more than 5 employees, your employer is required to make a stakeholder pension plan available to you. The type of pension scheme varies from company to company, with some offering more generous benefits than others, or making a higher employer contribution. In most cases, if you join a company scheme, you will pay a percentage of your pre-tax salary into the scheme, and your employer may also pay in an equal or higher percentage of your salary. If you start such a scheme early on in your career and remain with the company throughout your working life, you should get a good pension on retirement.

It's no secret though, that some company pension schemes have been hit hard by mismanagement by pensions advisers, leaving employees without the security they were expecting from their pension. If you are not sure that a company pension is for you, you could consider opening a personal pension plan. You may be able to negotiate an employee contribution to this plan, but many employers won't contribute to personal plans, so you may need to increase your contributions in order to ensure that you are saving enough to provide a reasonable income during retirement.

Can I Transfer My Pension?

In today's working world, it is less common for people to begin and end their working lives with the same company. It is far more likely that you will move between companies during your career, and you will need to consider what to do with your pension when that happens. In some cases, you may be able to keep your current pension scheme and pay into it independently, or ask your employer to pay a contribution. Alternatively, you could freeze your pension and, when you retire, you will receive a limited income from whatever money you have in that pension pot. Many people, however, choose to transfer their existing pension contributions into a new scheme, which allows them to continue adding to their pension without suffering a loss in pension value.