Pensions FAQs

So long as you have paid enough National Insurance contributions you should be on track to receive a state pension.

The full basic state pension in 2010/11 is £97.65 a week (£5,077 a year) for a single person. For more information on the state pension please visit The Pension Service website.

The state retirement age is 65 for men. For women it is currently 60 but this is set to rise gradually from 2010 to reach age 65 by 2020. The government also announced that it intends to increase the state pension age for both men and women to 68 by 2046.

You can find out your state retirement date using The Pension Service's state pension age calculator or phone 0845 3000 168.

This scheme provides extra pension, depending on the amount you earn and the additional national insurance contributions you have made. This scheme replaced the state earnings related pension scheme (SERPS). Self-employed people will not be accruing state second pension benefits for the time they are self-employed. Find out more about the state second pension.

An individual pension is your own private pension that you can pay into as you move from job to job. You can pay into one if you have access to a company scheme or not. Essentially, you pay money into your plan and choose where to invest it from a range of funds. These are managed on your behalf and the accumulated value is normally used to buy an annuity (an income for life) when you retire.

Find out about individual pensions or you can find out about the tax benefits of saving in a pension below.

There are numerous types of individual pensions but the main ones are individual personal pensions, stakeholder pensions, self invested personal pensions (SIPPs) and group personal pensions (GPPs).

Stakeholder pensions are similar to personal pensions. Providers cannot charge more than 1.5% of the fund value each year in the first 10 years, after which the maximum annual charge is 1%. Minimum contributions are low and you can stop and start them when you want.

Employers with five or more staff must generally offer access to a stakeholder pension if they do not offer an alternative scheme.

SIPPs are specialist products that allow you more flexibility over where your money is invested. They suit people who want to make their own investment decisions and are comfortable with taking on the higher associated risk.

You can choose to invest directly in anything from individual shares to property, picking the investments yourself rather than having your provider do this for you. Charges on SIPPs tend to be higher than on personal pensions.

SIPPs are a complex area and you should seek advice from your provider or a financial adviser if you are interested in this type of pension. There may be a charge for financial advice.

A group personal pension is a collection of personal pension plans, normally set up through your employer and provided through a single pension company.

RAPs were the predecessors of personal pensions. They were offered at the time to the self-employed and the employed who didn't have a company pension scheme. Their main purpose was to create a fund that could be used on retirement to purchase an annuity. No new RAPs have been issued since 30 June 1988, but people continue to pay contributions to existing contracts.

You can use the Retirement Calculator to find out if your pensions and savings will be enough to fund your retirement. When using it please input RAPs under the personal pension category.

These are schemes organised by a company or organisation for its employees. Employers often top up your contributions.

There are two types of company schemes, final salary and money purchase. If you don't join your employer's scheme you'll miss out on any contributions your employer may make. If you need more information please check with your employer.

Find out more about company pensions.

A final salary scheme is also known as a defined benefit pension scheme. This provides a pension based on your final salary and how long you've been in the scheme. For example, an employer may offer 1/60 of your final salary for every year you've worked there.

A money purchase scheme is also known as a defined contribution pension scheme. You make contributions each month and the pension you receive is based on factors such as contributions paid, returns on investments and annuity rates at the time you retire. Your employer may also make contributions depending on the scheme's rules.

Individual pensions

For the 2010/11 tax year, generally for every £80 you pay, the government will add £20. If you pay income tax at a higher rate you will be able to claim back extra tax relief from HM Revenue & Customs at the end of each tax year through self-assessment.

Company pensions

If you're in a company pension scheme your contribution is paid before tax is taken from your earnings. This means that you immediately receive tax relief at the highest rate applicable. So for every £100 that goes into your pension, your tax is reduced by £20 if you are a basic rate payer. If you're a higher rate taxpayer your tax is reduced by up £40. Our section on tax benefits explains tax relief in more detail.

Group personal pensions

Group personal pensions are sometimes categorised or referred to as a company pension schemes because they are set up by employers. However, they are personal pensions and so the tax relief is applied as for a personal pension.

If you are a United Kingdom basic rate taxpayer, pensions in payment are taxed as earned income, and you will be taxed at the rate of 20% on your annuity income for the tax year to April 5 2011. If you pay income tax at the higher rate you may be liable for tax on your pension income at the higher rate.

No, there is no limit on the number of schemes you can invest in but if you're thinking of joining more than one scheme we recommend you seek financial advice. There may be a charge for this.

In April 2006 new tax rules were introduced that make it easier to save in more than one company or personal pension.

Yes there are. Tax relief is limited to 100% of your earnings or £3,600, whichever is the higher (with the exception of occupational pension schemes). So if for example you earned £25,000 a year contributions up to this amount would be eligible for tax relief. Any contribution above this would not receive tax relief.

If you earned below £3,600 you can pay up to £3,600 into you pension and this will be eligible for tax relief.

The amount you save each year toward a pension is also subject to an 'annual allowance'. For the tax year 2010/11 the annual allowance is £255,000. This means if you pay in more than this in one year then you will pay tax at 40 per cent on the excess.

Where you are also a member of a defined benefit company pension scheme, any increases in the value of your pension during the year under the scheme will count towards the annual allowance.

The annual allowance doesn't apply in the year you take all benefits. As the tax relief limits remain the same this gives you further scope to maximise contributions, tax relief and benefits in the year of retirement, although tax relief is only available up to 100% of earnings.

If you think the annual allowance may affect you then you might consider speaking to a financial adviser.

Pensions in payment are taxed as earned income.

You can take up to 25% of your fund as a tax-free cash lump sum - so long as your pension scheme rules allow it, you are under 75 and your total pension savings are within the lifetime allowance.

New rules for pension taxation introduced in April 2006 set a lifetime allowance for the total value of pension savings that can accrue before a tax charge is applied. If your benefits exceed the limit then the amount above it could be taxed at up to 55%. The lifetime allowance for the 2010/11 tax year is £1.85 million. The Government have introduced some rules around restricting tax relief on those with a total annual income of £130,000 or above. If you think the lifetime allowance or annual income may affect you then you should consider speaking to a financial adviser.

If you don't pay tax you can still contribute to a pension. There is no limit to how much you can put into a pension, but there are limits on how much tax relief you can get on your contributions. You can pay up £2,880 a year and receive 20% tax relief bringing it to £3,600.

You may be able to combine your different pensions into one overall fund to maximise the potential annuity benefits you could get. There will be an impact in doing this and it may not be in your best interests to transfer so we recommend you speak to a financial adviser first.

Combining pensions can depend on the type of schemes you have. Ask if you are able to combine the various funds you have when getting quotations.

Additional voluntary contributions (AVCs) are non-compulsory top up payments made by a member of a company pension scheme to boost retirement benefits. You pay into a scheme run by your employer who takes these contributions normally direct from your pay. It can sometimes be called an in-house AVC.

A free standing additional voluntary contribution, or FSAVC, is arranged by the member separately of the company. You pay the contributions direct from your bank/building society account.