A pension is a steady income that is received after retirement, paid on a regular basis to the pensioner. The pensioner can also elect to receive a tax-free lump sum and reduced pension, if they wish. In the UK there are generous tax benefits attached to pensions.
There are various types of pension available:
State pensions are payable when you reach state pension age and the amount you will receive depends on the amount of national insurance contributions you have paid or are deemed to have paid.
Company pensions are set up by employers for their employees and are managed by a trust. Often the employer will top up employee contributions.
Individual pensions are private pensions that you can keep, regardless of your employment status. Different types of individual pension are available:
Personal pensions are private pensions that can be taken from job to job. They are useful for people who don't have a company pension or who are self-employed.
Stakeholder pensions are similar to personal pensions and again, are useful if you don't have a company pension or if you are self-employed. They are also useful for people who can only save small amounts of money and who want a flexible pension.
Self-invested personal pensions are specialist products that enable investors to become more involved in investment decisions. They are suitable for people who are happy to take more risk and who want more flexibility.
There are certainly benefits to be gained by taking out a pension. The state pension may not provide enough money when you retire; your pension pot is increased through tax relief; your pension fund grows largely free of tax; you will have access to tax free cash after retirement; your employer makes contributions that increase your fund; you will have more cash when you retire and so can enjoy your retirement without having to worry about money.
There are some problems that can occur with pensions. The way that you deal with them depends on the type of problem and the type of pension you hold. Visit this site to find out more about how to overcome pension problems.