Pensions guides

Why take out a pension?
What are the benefits?
What happens when you start?

Why take out a pension?

No one likes to think about getting older. And when you're juggling financial commitments like your mortgage, household bills and other outgoings, it's all too easy to put off planning for retirement.

Think about this though. Just to have enough money to pay for the everyday essentials, you'll need to have a decent pot of money put aside.

Even buying a daily newspaper can add up over a year. And if you dream of travelling, spending time on your hobbies or simply enjoying the finer things in life, you'll need to have some serious financial plans in place.

The good news is that you've decided to do something about your future, today. By starting your pension now, you can stop worrying about the future and start dreaming about your plans for later life.

What are the benefits?

• Tax relief on regular or lump sum payments - for every £80 you pay in to your pension, the government pays in another £20. If you are a higher rate tax payer - you may be able to claim back more tax (up to a maximum of an additional 20% depending on your circumstances. Note that no tax relief is payable on transfers.
  
  
• Tax free growth - for most types of pension investment, if your money grows you will pay no tax. There are exceptions to this rule.
  
  
• Tax Free Lump sum - when you are ready to take your money, a pension typically allows you to take 25% of the value as a tax free lump sum

What happens when you start?

1. You make payments - this is invested and potentially builds up a pot of money throughout your working life. You can make either regular or single payments (or both). You may also bring your pensions together by transferring your other pension(s) into your new pension. However, you must check if transferring your pension means giving up valuable benefits.

2. Your money is invested in a choice of funds - and these funds are managed by investment professionals. You decide which funds you'd like to invest your money in.

3. You take your money out - the money you've potentially built up is used to buy you an income until you die, known as an annuity. You can also take a tax-free lump sum of up to 25% of your pension savings - although that means a smaller yearly income.

The value of your investment can go down as well as up and you may get back less than you invest. The amount available to provide your retirement benefits depends on how much you have invested, how your investment performs and any charges you have to pay. We recommend that you take financial advice before deciding.