Pensions overview

A pension is a long-term savings plan. It helps you to save a little of your income regularly during your working life, so you can have an income when you are older or decide to retire. If you’re affected by cancer, thinking about pensions could be useful for many reasons.

There are three different types of pension schemes:

  • State Pension – provided by the government. Most people get the State Pension, but this usually only covers basic needs.
  • Workplace pension schemes – run by employers. These can be defined contribution schemes or defined benefit schemes.
  • Personal pension schemes – sometimes run by employers, or you can set these up yourself.

From April 2015, some types of pension have become more flexible. You may be able to take some or all of your savings early as a lump sum, to help you cope with unexpected expenses or time off work.

It's important to start paying into a pension as soon as you can. The sooner you start saving, the more likely it is that you will have a good income during retirement.

What is a pension?

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.


Why get a pension?

A pension gives you money to live on when you retire. Most people get the State Pension but this usually only covers basic needs. If you want a bigger income, you will need to save more. The more you save, the more money you will have to live on when you retire.

From April 2015, some types of pension have become more flexible. You may be able to take some of your savings early as a lump sum, to help you cope with unexpected expenses or some time off work.

Reasons to get a pension:

  • The State Pension can change and may not give you enough money to live on.
  • People are living longer and need to save more money.
  • Your employer will normally pay money into a workplace pension so you’ll save more.
  • You usually get tax relief on pension contributions. This means that some of the tax you would normally pay to the government is paid into your pension scheme instead.
  • You may be able to get a tax-free lump sum when you retire.
  • You may be able to take out other, partly tax-free lump sums before you retire.
  • There may be valuable death benefits for your dependants.


How do pensions work?

Most pensions work like this:

  • During your working life, you (and your employer, if you have one) pay money into a pension scheme.
  • The money you pay in is either invested so that it can grow (called defined contribution), or you build up a specific amount of benefit (called defined benefit).
  • When you have reached the age of 55, you can decide to take out your pension to live off during retirement.

In a defined contribution scheme, you may take a regular income, one or more lump sums, or a mixture of both. This depends on the options you choose. In a defined benefit scheme, you get a lump sum at the start and a regular income for life.

The State Pension works differently as it is provided by the government.

Workplace pension schemes

Workplace pension schemes can be:

The government has recently introduced automatic enrolment so it is compulsory for employers to enrol their employees into a workplace pension scheme.

Personal pension schemes

These can be taken out by an individual or arranged by your employer as your workplace pension scheme. When provided by your employer, they are often called group personal pensions. They work in the same way as personal pensions that you arrange yourself and are always a defined contribution scheme.

The sooner you start saving, the more likely you will have a good income during retirement. This is why it's important to start paying into a pension as soon as you can.

Back to Pensions

Pension changes

Since April 2015, some types of pension have become more flexible.

State pensions

The State Pension is a regular payment you can get from the government when you reach retirement age.

Workplace pensions

A workplace pension is a pension scheme arranged through your employer. There are different types of workplace pensions.

Personal pensions

Personal pensions are often available through your workplace. But self-employed people often have them too.

Defined benefit schemes

A defined benefit scheme is when your employer promises to give you a pension when you retire.