What is a pension?

A pension is simply a form of saving for retirement that has generous tax benefits. The money you save in a pension builds up into a pot which is invested and when you elect to take your benefits the pot is used to pay a regular taxable income for life. You can also choose a lump sum payment and a reduced pension if you wish.

Types of pension

There are three main categories of pension: state pensions; company and individual pensions.

State pensions

The amount you'll receive will depend on the amount of national insurance contributions you've paid or are deemed to have paid. You may also be entitled to an additional pension called the State Second Pension, as well as pension credit.

The state pensions is payable from state pension age, which 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.

Company pensions

These schemes are set up by an employer or an organisation for its employees under a trust, and are managed by trustees. Employers often top up contributions made by employees - read more about company pensions.

Individual pensions

This is your own private pension that you can keep, regardless of your employment status. These are available from a variety of financial services companies.

There are different types of individual pensions including personal pensions, stakeholder pensions and self-invested personal pensions - read more about individual pensions.

An overview of the different categories of pensions

Group Personal Pensions
Even though they are offered through your employer, group personal pensions are personal pension schemes, and this means you have an individual contract directly with the provider. These are treated as individual pensions for tax purposes.