Pensions Overview

A pension is, in simple terms, a long term savings plan with a means to keep the money coming in when you retire (currently age 55 or older). It provides a tax-efficient way to save money during your working life, and at retirement you can use your accumulated pension pot to provide you with an income.

The main 3 types of pension are:

• Final Salary Pension (also known as Defined Benefit Pension)
• Money Purchase Pension (also known as Defined Contribution Pension)
• The State Pension

Final Salary Pensions

Final Salary Pensions are always associated with employment (Public or Private Sector). They are a promise of an income in retirement based on qualifying years of service and a scheme specific accrual rate. At retirement many funded schemes allow members to request a Cash Equivalent Transfer Value (CETV) and the option of transferring to a private arrangement. There a number of advantages and disadvantages to transferring to Pension Drawdown, but you should be aware that this is a highly regulated process which requires special advice from a suitably qualified Pension Transfer Specialist.

The Pension Drawdown Company specialises in Final Salary Transfers, please contact us if you would like to speak to one of our Pension Transfer Specialists.

Money Purchase Pensions

Money Purchase Pensions can be a private arrangement or part of an occupational scheme provided by an employer. It you think of it as a pot, money gets put in and hopefully increases in value, then you take money out of it once you retire. At retirement the main options for drawing pension benefits are typically via:

• An annuity (i.e. a income purchased from your pot which is typically provided by an insurance company)
• A Pension Drawdown (i.e. drawing an income from your pot whilst remaining invested)
• A Scheme Pension (i.e. a form of annuity provided by an employer)

The State Pension

The State Pension is paid by the government and is a secure income for life which increases by at least the rate of inflation each year.

You build up an entitlement to the state pension via national insurance contributions during your working life. It is also possible to build up rights even when you’re not working, such as when you’re bringing up children or claiming certain benefits.

For the current tax year, the full new state pension is £175.20 per week. The actual amount you get depends on your National Insurance record.