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Retirement:
Overview of pensions

Pensions need not be daunting. Broadly speaking there are three types of pension (listed below). You can read about them in more detail by clicking on the appropriate one:

The state pension provided by the Government

Pensions provided by your employer(if you have one)

Pensions you arrange yourself, perhaps through a financial adviser

The state pension

The state pension is paid to individuals once they reach the state retirement age. To qualify for a state pension you must have paid, or been credited with, sufficient national insurance contributions over your working life up to your retirement age.

Pensions other than the state pension

Most pension schemes are trusts. The money you save for your pension is held by the pension scheme on your behalf until you retire. The pension scheme is run by trustees who make the investment decisions for the money in the pension fund. The pension fund is made up of the contributions paid into the fund. The contributions may be paid by individuals, businesses or, for contracted out schemes, the government. When you retire the pension fund (or your part of it if there are other people paying into the same fund as is often the case with schemes run by employers) pays you a pension.

The vast majority of pension schemes in the UK are approved by HM Revenue & Customs. This means the schemes get the following tax benefits:

You get tax relief on the contributions you pay to the scheme

You do not get taxed on any contributions your employer makes to the scheme on your behalf

There is no income tax or capital gains tax to pay on your pension scheme�s investments

The exception to this is that pension schemes do effectively suffer 10% tax on dividend income as they can no longer reclaim this tax (which is deducted at source before the dividend is paid) from H M Revenue & Customs.

When you get your pension from an approved pension scheme, you will normally be entitled to a tax free lump sum and your annual pension will be taxable income.