Questions and Answers

When should I start saving?

Like many other people, you might feel that retirement is too far away to think about. Maybe you think you can’t afford to save for the future now when there are so many other things you have to pay for every day.
But the truth is that the earlier you start saving for your retirement, the more money you’re likely to have to enjoy yourself – and pay the bills – when you retire.
Remember:

• Don't worry if you can only spare a few pounds a week at first. The important thing to bear in mind is that the sooner you start, the more time you will have to earn interest on your savings - and you can always increase your payments later on

How much will I need when I retire?

The State Pension will give you a basic income when you retire, but it's your responsibility to decide on the kind of lifestyle you want in retirement, and what you need to do to achieve it.
Everyone’s circumstances are different so it’s difficult to know exactly how much each person will need. For most people, the decision depends on how much you can afford to save. Some costs of living may be lower when you retire – such as taxes, no fares to work and no National Insurance contributions. You may have paid off your mortgage and you may no longer be supporting a family. On the other hand, you will have more leisure time and other costs, such as heating and healthcare, may increase.

• As your earnings increase, think about increasing your pension payments

How do I know if I should save more?

To help you decide if you should start saving more for your retirement, you need to review your finances:

• Find out how much State Pension you may be entitled to when you reach State Retirement age**. This will give you an idea of what you can expect to receive from the Government and help you to decide whether you are currently saving enough for your retirement needs
  Apply for a State Pension forecast online

• If you are already a member of an occupational pension scheme, your employer or pension provider may send you a statement every year that shows how much pension you can expect to receive from the scheme when you retire. If you haven't received one, you can ask your employer or pension provider to send you one
• If you are currently employed and are a member of an occupational pension scheme, it may be worth finding out if your employer can give you a combined pension forecast – that is, a pension forecast that shows details of both your State Pension and company pension together
  Find out more about combined pension forecasts
• If you are already a member of a personal pension scheme, your pension provider will send you a statement every year that includes an individual pension forecast for the scheme you belong to. This will tell you how much you may be entitled to when you retire
• If you think you are a member of one or more old company or personal pension schemes that you do not know the full details of, the Pension Tracing Service may be able to help you find them
  Find out more about the Pension Tracing Service

If you don’t think you will have enough money to support yourself when you retire, think about whether you can afford to save more by increasing your contributions to an existing pension, getting an extra pension, or investigating other savings options.

What happens when my circumstances change?

Most people's circumstances will change again and again before they reach State Retirement age** - and that might mean you want to save more, or reduce your payments for a while.
You might change your job, decide to become self-employed or not be able to work for long periods while you're looking after children or caring for someone. You may be injured or ill and not able to work. All of these factors can affect your ability to pay contributions into a pension scheme. Other important changes can involve getting married or forming a civil partnership, getting divorced or ending a civil partnership, or going to live and work abroad, which can change the amount of money you're entitled to.
When important changes like this happen, it’s a good idea to review your pension arrangements.

What is the State Pension?

The State Pension is made up of:

What is the basic State Pension?

The Government pays the basic State Pension to people who claim it and have reached State Retirement age**. You qualify for it by:

• paying;
• being treated as having paid; or
• being credited with

National Insurance contributions for a minimum number of years.

• basic State Pension
• additional State Pension

You may be entitled to either or both when you reach State Retirement age**

What is the additional State Pension?

The additional State Pension is money paid to you by the Government each week. The amount you get depends on your earnings and National Insurance record throughout your working life. You do not have to be getting the basic State Pension to get additional State Pension.
Your additional State Pension is also called the State Second Pension, which was previously known as the State Earnings-Related Pension Scheme (SERPS).
You may get shared additional State Pension if you divorce or have your marriage annulled after December 2000 or if your civil partnership ends.
You cannot get any additional State Pension for National Insurance contributions you pay as a self-employed earner.
You can also get Graduated Retirement Benefit if you paid enough graduated contributions during the period from April 1961 to April 1975.
want when you retire you will need to think about other savings too.
Most employers will take your National Insurance contributions straight out of your wages. You can see how much you're paying on your payslip. Your employer also pays National Insurance for you. If you are self-employed, it is your responsibility to make sure you pay your own National Insurance contributions.
If you haven’t always worked you may still be able to receive credits for periods when you’ve been out of work, had long-term illnesses and injuries, or been getting Carer’s Allowance because you are caring for someone who is seriously sick or disabled. This means that the Government will add some contributions to your National Insurance record for you – so you will still be building up a State Pension for those years.
You may also get help from Home Responsibilities Protection (HRP) to protect your basic State Pension if you are:

• caring for a child under 16 and you receive Child Benefit
• caring for a sick or disabled person
• an approved foster carer

HRP does not credit you with National Insurance contributions, but it does reduce the number of years that you need to have paid contributions to get a State Pension.

Can everyone get the additional State Pension?

No. You cannot build up your additional State Pension for any period where:

• you are not working
• you are self-employed
• you earn less than a set amount a year (£4,524 for 2007/2008)
• you have contracted out of the additional State Pension and instead pay into a personal pension and earn more than £13,000 for 2007/2008
• you are contracted out of the additional State Pension and instead pay into an occupational pension scheme and earn above £30,000 (in 2007/2008).

However, in some circumstances, carers and people with long-term illnesses and disabilities can build up an additional State Pension even if they are not in work.

What if I want more money than my State Pension when I retire?

The State Pension will give you a basic income for when you retire but it's your responsibility to decide on the kind of lifestyle you want when you retire, and what you need to do to achieve it.
There are a number of options you can consider to help increase your income when you retire, including saving in an occupational or personal pension scheme, or working longer.
Private pensions are a long-term investment. This site gives you basic information about the options currently available. For more information to help you decide what’s best for you, you may find it useful to contact us directly for an independent review of your retirement plans

What is an occupational pension scheme?

An occupational pension scheme is an arrangement an employer makes to give its employees a pension when they retire. Occupational pensions are also known as company or work pensions. By not joining you could be missing out on tax relief as well as contributions towards your pension made by your employer. You can get an occupational pension on top of any State Pension you may be entitled to.
There are three important benefits of an occupational pension:
1. Tax relief: you get tax relief on your contributions. This broadly means that with a basic rate of income tax of 22%, for every £100 you pay in, the amount you pay in tax will be reduced by £22 (based on the tax year 2006/2007). With a higher rate of income tax of 40%, for every £100 that goes into your pension, the amount you pay in tax will be reduced by £40 (based on the tax year 2006/2007).
2. Employer contributions: most employers who run occupational pension schemes make contributions to the scheme on top of those paid by the member.
3. Extra benefits: occupational pension schemes often offer other benefits such as life assurance or a pension for your dependants if you die. You will need to check the exact benefits with your pension scheme provider.
There are two main types of occupational pensions, both of which have either trustees or scheme managers to look after members’ interests.
Salary-related pension schemes (also called defined benefit, DB or superannuation schemes)
In a salary-related scheme, the pension you get is based mainly on the number of years you belong to the scheme and your earnings. Your pension can be based on your earnings when you retire or leave the scheme or your average earnings during the time you contributed to the scheme. In some schemes only your basic salary counts towards your pension, but others also include additional payments such as overtime and bonuses.You usually have to pay contributions into the scheme on top of those that your employer pays.
Money purchase pension schemes (also called defined contribution or DC schemes)
In a money purchase scheme, your contributions (together with any from your employer) are invested and the amount you get when you retire depends mainly on the total amount of money you and your employer have paid into the scheme over the years and how the investment has grown. When you retire, you can choose to take some of your pension savings as a tax-free lump sum. The scheme will then use the rest of the fund to either pay you a pension or buy you an annuity from an insurance company to give you a regular income when you retire. This is why they are called ‘money purchase’ schemes – you are swapping your fund for a regular income for the rest of your life.
Things to remember when you join an occupational pension scheme:

• Before you join an occupational pension scheme, one of the most important things to check is how much you will have to pay - and what contribution your employer is going to make.
• An occupational pension scheme is connected to your job. So if you leave your job, you need to check what will happen to your pension. You may be able to transfer your pension to another occupational scheme. It depends on whether or not your new employer will accept the transfer.
• If you decide to keep your benefits in your previous employer’s occupational pension scheme, you can still join another occupational pension scheme.
• No financial products, including pensions, are entirely risk-free. For example, your employer may go out of business, or decide to change, or close, their occupational pension scheme for another reason, which could mean you get less than you were expecting. Also, the amount of pension you get may depend on how well the scheme’s investments have performed by the time you retire.

If you’re not already a member of an occupational pension scheme, find out if your employer offers one. And, if you are already paying into an occupational pension scheme, remember you may be able to increase the amount you pay in. Talk to your employer for more information.

What is a personal pension?

A personal pension is a kind of pension that you buy from a pension provider such as a bank, life assurance company or building society. It is entirely your own, which means you can continue to contribute to it if you move jobs.
It is a good idea to consider a personal pension if you:

• cannot, or do not want to, pay into an occupational pension scheme
• are self-employed
• are not working but can afford to pay for a pension

Personal pensions are money purchase schemes (also called defined-contribution or DC schemes). As with occupational money purchase schemes, the money you save is put into investments for you, such as bonds or stocks and shares. When you retire, this fund will be used to buy an annuity from an insurance company that will give you a regular income.

What are the benefits of a personal pension?

There are several advantages to contributing to a personal pension scheme:

• You get tax relief on your contributions up to HM Revenue & Customs limits. This broadly means that (using the basic tax rates for 2006/2007) for every £78 you pay into a personal pension, the Government adds an extra £22. And the more you save the more you get in tax relief
• You can choose to take a tax-free lump sum of up to 25% of your total pension when you retire
• You may be able to choose the funds you invest in
• Other people can pay into a personal pension on your behalf. This means that partners or other family members can help you save for your retirement
• You don’t need to be working to save in a personal pension scheme

What is a stakeholder pension?

Stakeholder pensions may be a good choice for you if you do not have access to an occupational pension or a good-value personal pension. If you are self-employed, or not earning, a stakeholder pension could also be the best option for you.
Stakeholder pensions are money purchase pensions. As with other types of personal pensions, the pension you get does not depend on your salary and the money you save is put into investments for you. Your fund will then be used to buy an annuity from an insurance company, to give you a regular income when you retire.
What are the benefits of a stakeholder pension?
There are some differences between stakeholder pensions and other types of personal pensions. Stakeholder pensions have to meet certain standards set by the Government to make sure they offer value for money, flexibility and security.

• You get tax relief on your contributions up to HM Revenue & Customs limits. This broadly means that (using the basic tax rates for 2006/2007) for every £78 you pay into a stakeholder pension, the Government adds an extra £22. And the more you save the more you get in tax relief
• The charges are capped – there are limits to how much you have to pay the pension fund provider
• There are low minimum payments
• They are more flexible than many other private pension schemes – you can choose when and how often you pay into the scheme and there are no penalties if you miss a payment
• Other people, as well as your employer, can pay into a stakeholder pension on your behalf. This means that partners or other family members can help you to save for your retirement
• You don’t need to be working to save in a personal pension scheme

**State Retirement Age is currently 65 for men and women born after 6th April 1955.