What is a pension?
Apart from buying a house, setting up a pension is one of the most long-term savings commitments you will ever make.
Simply put, a pension is a fund of money which you save throughout your working life to fund your living in retirement. A pension, which is accumulated throughout your working life in a tax-free manner, will eventually be traded in by most people to buy an annuity. An annuity will guarantee you a set income from when you purchase it at the beginning of retirement, to when you die.
Pensions are often misunserstood, as they aren’t the most simple of concepts.
The pension that most people receive is the State Pension, a pension paid by the government to all people who qualify, usually through having paid National Insurance contributions throughout their lives.
This pension is currently supplemented by the additonal State Pension, which is also paid based on earnings and National Insurance contributions throughout a lifetime of working.
The State Pension is not usually enough for people to live off, and as such should not be relied on as the only form of income in retirement. There are new plans to create a joint State and additional State Pension, but even this would only pay around £150 a week, which is not enough for most people to survive on.
To make sure you are comfortable in and enjoy your retirement, many people opt for an addtional pension. There are a range of options availible, listed below.