Pensions

A pension is a type of long-term savings plan which enables people to save specifically for their retirement. Any UK resident can join a pension scheme and both the pension holder and their friends and relatives can contribute to the savings fund. Your pension scheme provider will claim tax relief from the government on the contributions you make, which means that for each one hundred pounds of pension fund you have you need only contribute seventy-eight pounds. Upon reaching retirement you will be entitled to a tax-free lump sum, usually equal to approximately 25% of the total value of the fund. The rest of your pension fund will be used to buy an annual pension, or annuity, for you from an insurance company.

Since pensions are designed to help people save sufficient money for their retirement, it is impossible to access the money in your pension fund until you reach the agreed retirement age, currently age fifty and set to rise to age fifty-five from 6th April 2010. This means that if you begin contributing to a pension scheme aged twenty, you will usually have to wait for thirty-five years before you are allowed to access the funds. However, this ensures that the money you save for your retirement years will be available when you come to retire!

For detailed information on the UK pension system, including the types of private pension available, see Pensions.