A pension is a long-term savings plan. The different types of pension schemes available may seem very confusing. But they all have the same aim – to help you save money for when you are older and want to retire.
A pension scheme helps you to save a little of your income regularly during your working life, so you can have an income when you are older. By this time, you may want to work less or retire altogether. Or you may want to retire earlier if you are not well and are no longer able to work.
There are three different types of pension schemes:
- State Pension – provided by the government and based on how much National Insurance you have paid or been credited with. National Insurance is a tax you pay while working. The contributions may help you become eligible for State Pension and some other state benefits.
- Workplace pension schemes – run by employers.
- Personal pension schemes – sometimes run by employers or you can set these up yourself.
Some people choose to have more than one pension scheme to give them more income when they retire.
In April 2015, the government made significant changes to the pension system. Many people now have more flexibility to take out part, or all, of their savings from the age of 55.