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 2011/12 is £102.15 a week (£5,311.80 a year) for a single person. For more information on the state pension please visit the Directgov website.

The state retirement age is currently 65 for men and 60 for women born on or before 5 April 1950. For women, this will rise gradually to equalise with men by December 2018. The state pension age will then rise to 66 for both men and women by April 2020.

You can find out your state retirement date using the state pension age calculator on the Directgov website 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.

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

Subject to limits, for the 2011/12 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 2tax 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 2012. 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. Note tax relief only applies up to age 75.

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 government limits the amount that can be contributed every year before incurring tax penalties. This is called the 'Annual Allowance'. The level of Annual Allowance currently is £50,000. If you exceed the Annual Allowance, a tax charge of up to 50% of the excess amount will be payable.

However, any unused allowance (up to £50,000 per year) from pension input periods ending in the previous 3 tax years, may be carried forward to increase your Annual Allowance for the current year (provided you have used the current annual allowance first and you were a member of a registered pension plan).

Your Annual Allowance includes:

• any contributions you, your employer or anyone else makes to all your money purchase pension plans
• any increase (except statutory increases relating to early leavers) in the value of benefits under salary related pension schemes, also known as Final Salary, Defined Benefit or Career Average schemes

If you think you are affected by the Annual Allowance you may wish to contact a Financial Advisor, for which you may be charged.

Pensions in payment are taxed as earned income.

You can usually take up to 25% of your pension fund as a tax-free lump sum when you buy your annuity, subject to your scheme rules and so long as 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 the value across all your pension funds exceeds the limit at the time you take your benefits, a tax penalty will be payable on the excess amount. The limit for 2011/12 is £1.8 million, and from 6 April 2012 will reduce to £1.5 million. The government has introduced protection, which you will need to apply for by 5 April 2012, if you expect the value of all your pension funds to be in excess of £1.5 million when they are taken. If you are affected by this limit you may wish to either contact us or a financial adviser, for which you may be charged.

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.