Starting a pension is a really important decision and not one to be taken lightly. With people living longer on average than ever before, your pension may have to last you for a good 20 years or more.

No matter what you feel you can afford right now, start today and your pension could be worth more than if you put it off until tomorrow. Even a relatively short delay could cost you dear.

The State pension is currently divided into two parts, the basic ‘old age’ pension and a broadly earnings related pension, called the State Second Pension. The basic old age pension is a flat rate pension available to everyone who has paid sufficient National Insurance contributions.

Provided you have paid enough National Insurance contributions, you should receive the full Basic State Pension which is currently £87.30* a week. A 65 year old person with a dependent husband, wife or civil partner can expect £139.60* a week.

* for tax year 2007/8

State Second Pension

It is only available to people who have been or are employed, and is paid for by National Insurance contributions. Its value is linked to pay and is not dependent on investment returns or the cost of buying a pension annuity at retirement.

Further information about the Basic State Pension and the State Second Pension is available at www.direct.gov.uk and www.thepensionservice.gov.uk.

Pension Credit
Pension Credit is a benefit for people aged 60 or over living in Great Britain. This could mean extra money for you every week. Pension Credit guarantees everyone aged 60 and over an income of at least:

£119.05 a week if you are single

£181.70 a week if you have a partner

Also, if you or your partner are 65 or over you may be rewarded for saving for your retirement by up to:

£19.05 a week if you are single

£25.26 a week if you have a partner

From 6 April 2010 the age from which you can get Pension Credit will gradually increase. This will be in line with the State Pension age becoming 65 for women as well as men by 2020.

Legal & General currently offers a contracting out option on some of its corporate products.

By contracting out with our products you give up your future entitlement to the State Second Pension in exchange for payments by the Government into your plan now.

If applicable these payments are rebates from part of your employer’s and your own National Insurance (NI) contributions plus income tax relief on your share of the rebate. These payments are also known as Protected Rights. The NI Contributions Office pays them directly into your pension plan each year after the tax year ends. The payments will then be put into a fund under your control, which will be used to provide you with an income or income with cash lump sum when you take your benefits.

• The rebates will be invested as you decide - you have the option of a wide range of funds, which have varying degrees of investment risk.
• The pension you receive when you decide to take your benefits will depend on a number of factors including how well your investments have performed and the cost of buying an annuity at the time.
• The pension you eventually receive may be more or less than the State benefit given up. It is not guaranteed by the Government or Legal & General.
• You will only give up your entitlement to State Second Pension for the years you are contracted out. You are still entitled to any State Second Pension savings accumulated prior to contracting out or after ceasing to contract out.
• You are also allowed to exchange up to 25 per cent of the value of your Protected Rights benefits for a cash lump sum.

You can only contract out (and back in) from 6 April in any year and you must be contracted out for whole tax years.

Contributions you make to your pension plan qualify for tax relief and any growth in your pension fund is free of UK income tax and capital gains tax. However, we cannot reclaim the tax paid on dividends from UK companies.

You can contribute up to 100 per cent of your annual earnings, or £3,600 gross if greater, each year and still get full tax relief including higher rate (where appropriate). You can contribute more than this but you wouldn’t get tax relief on the excess. However a 40 per cent tax charge will be levied on any excess of the total contributions to all your Registered Pension Schemes, including any paid by the employer, above an amount known as the Annual Allowance.

For the 2007/2008 tax year, the Annual Allowance has been set at £225,000. It will increase in stages to £255,000 for the tax year 2010/2011 and will be reviewed on an ongoing basis after that. Please see the table below for the Annual Allowance amounts.

Tax Year Annual Allowance

• 2008/2009 £235,000
• 2009/2010 £245,000
• 2010/2011 £255,000

If you join a Group Stakeholder, a Group Personal Pension or a Group Portfolio Plus Self Invested Personal Pension the amount you wish to pay into your plan, after basic rate tax has been deducted, is called your net contribution. We then add to your net contribution the basic rate tax relief reclaimed from HM Revenue & Customs (HMRC) and invest the total, called the gross contribution, in your plan. If you pay higher rate tax, you will need to claim the extra tax relief through your tax office.

For example:

You say you want to pay 5% of your net salary, and your net salary is £2,000 per month (5% of £2,000=£100)

Amount taken from your monthly salary
(called your net contribution) £100.00

Tax relief claimed: (see note 1) £28.20

Total gross contribution invested £128.20

Your contract is for the gross contribution, so if basic rate tax changes, the amount you actually pay will change.

Note 1: This figure assumes a basic rate of tax of 22%. This is correct for the 2007/2008 tax year.  The basic rate of tax will reduce to 20% for the tax year 2008/2009.

If you join a Company Pension Scheme, a Group Additional Voluntary Contribution Plan or a Small Self Administered Scheme the employer collects employee contributions using the 'Net Pay Arrangement' system. This allows your contributions to be deducted from your gross pay before the tax payable is worked out. Therefore, the correct tax relief is given automatically as the contributions are paid.

You can contribute up to 100 per cent of your annual earnings, or £3,600 gross if greater, each year and still get full tax relief including higher rate (where appropriate). You can contribute more than this but you wouldn't get tax relief on the excess.
However a 40 per cent tax charge will be levied on any excess of the total contributions to all your Registered Pension Schemes, including any paid by the employer, above an amount known as the Annual Allowance.

For the 2007/2008 tax year, the Annual Allowance has been set to £ 225,000. It will increase in stages to £255,000 for the tax year 2010/2011 and will be reviewed on an ongoing basis after that. Please see the table below for the Annual Allowance amounts.

This limit will not apply in the actual tax year retirement benefits are taken. The calculation of the Annual Allowance charge is different for members of a defined benefit scheme.

*From 6 April 2006, all pension schemes (excluding State schemes and schemes which were unapproved under previous legislation) are Registered Pension Schemes.

This will depend on:

• what income you think you will need in retirement
• how much pension your fund will buy
• the likely level of State provision when you retire
• the effect inflation will have on your savings
• the number of years of contributions
• the performance of your pension fund

You will need to consider what your outgoings might be in retirement and if you need to provide an income for any dependants.

Fund choice will largely depend on your attitude to investment risk. Legal & General offers a range of funds from low to high risk. All the funds have a ‘risk rating’ to help you decide which funds are suitable for you. You can choose which funds to invest in and how much of your contribution you want to go into each, allowing you to build a portfolio of investments to suit your needs.

You can change where your future contributions and existing pension funds are invested (within certain limits), so you are not tied to a fund for the length of the plan.

For Legal & General’s Stakeholder and Personal Pension Plans there are currently no charges for doing this. However, if you are invested in With Profits, we may reduce the value of your switched amount. This is called Market Value Reduction. We use the Market Value Reduction to treat customers who stay in With Profits fairly, as well as those who withdraw from it. The Market Value Reduction will usually be applied when investment conditions have been insufficient to support bonuses. It will also account for additional deductions that may be required to cover the cost of guarantees and options for With Profit policies.

Some funds may have an additional annual management charge (AMC). The rate of this charge depends on the fund. If you switch into one of these funds, your total AMC may increase. Full details of this can be found in the Legal & General pension funds guides, which are available on this site. For Stakeholder Pension Plans your total AMC will not go over the maximum allowed which is currently 1.5% a year for the first 10 years and 1% a year thereafter.

For stakeholder pensions if you do not wish to choose a pension fund then the scheme default lifestyle profile will be selected.

A lifestyle profile is an investment option where your contributions initially go into a fund that is typically invested mainly in shares, to offer you the potential for growth over the long term. However, in the years before your selected retirement date, we steadily switch your investment into funds with lower risk. Please note you can stop a switch if you want to, or switch into other funds, by telling us in writing. It means you stop the ‘lifestyle’ approach, but you can rejoin it later.

External funds are funds provided by fund managers other than Legal & General.

We offer a range of externally managed investments from a number of different providers so that we can provide greater choice and flexibility. The range of our external funds has been carefully selected to complement our own internal fund range. The type of scheme you have will determine the number of funds and external providers available to you. Full details of our fund ranges are available in the relevant fund guide.

For more information on investment options for Small Self Administered Schemes either email SSAS_SIPPDept@landg.com or contact 01737 375724/20. We may record and monitor calls. We can only advise on Legal & General products.

Important information regarding our External Funds (not available for small self administered schemes)

Please note:

If you choose to invest in any of the external funds, there will be an additional annual management charge (known as the external funds annual management charge). The rates of the additional annual management charge may vary from fund to fund depending on the type of pension plan you invest in. However, under Stakeholder Plans, your total annual management charge will not exceed the maximum permitted stakeholder charge at any given time. This is currently 1.5% a year for the first 10 years and 1% a year thereafter.

You can find out more information on our external funds including the rates of additional annual management charges from our guide to External Pension Investment Funds brochure or the Portfolio Plus Funds Guide for Insured Funds for our Portfolio Plus Self Invested Personal Pension.

The value of your pension fund may fall as well as rise, and is not guaranteed. You should choose your funds carefully and review them regularly, particularly if you are close to retirement.

A money purchase scheme is also known as a defined contribution scheme. Under a money purchase scheme you are not guaranteed a set level of pension when you take your benefits. Instead, the benefits you receive are based on a number of factors including the amount of money contributed to your pension fund, the performance of the assets into which it is placed and the annuity rates available at the time you take your benefits.

The most common type of defined benefit scheme is a final salary scheme. Under this the benefits to the member will depend on the number of years of service, the final salary at the time benefits are rates and the accrual rates of the scheme. The employer will determine the accrual rates.

Defined benefit schemes can be contributory, where both the employer and employee pay contributions to provide benefits, or non-contributory where only the employer pays contributions. For further information on defined benefit schemes please speak to a financial adviser.

Modern pension plans allow you to stop, start, increase and decrease your contributions as often as you wish. However if you are a member of a stakeholder plan, your employer is not legally obliged to change the amount they deduct from your salary more than once in any six month period, although you can stop making contributions at any time. You may also choose to change the fund your contributions are invested in, or transfer the value of your plan to another pensions provider.

You can stop contributions at any time without penalty. However, you should consider the decision to stop contributions carefully, as this may have a detrimental effect on your retirement income as we will continue to deduct charges from your fund.

You can restart again at any time, again without penalty. However, if your employer is deducting the contribution from your salary they may restrict when you can restart. It is also worth bearing in mind that saving is an easy discipline to stop and a hard one to start. After a month or so you may not notice the contribution going from your salary, but if you do decide to stop, starting again can be hard.

If you join your employer's Company Pension Scheme or Small Self Administered Scheme your employer is obliged to make a contribution for you.

If you join a Group Stakeholder, a Group Personal Pension, a Group Portfolio Plus Self Invested Personal Pension or a Group Additional Voluntary Contribution Plan your employer is not obliged to make a contribution for you.

A company pension scheme is a valuable benefit but you do not have to join. If you have a private pension you can normally continue paying into it, but you should check with your financial adviser. However, if your employer makes contributions they may wish to only pay these into the company pension scheme.

This only applies to the Group Portfolio Plus Self Invested Personal Pension.

Self investment is a very simple concept – it gives you greater control over where your pension fund is invested. Under an insured fund, the fund managers decide the choice of which assets, such as shares, property, cash and bonds, the fund is invested in.

Under a self invested arrangement you make the investment decisions. This gives you greater investment control but does require you to have a good understanding of each investment you choose as well as the costs and risks involved.

Self investment is not appropriate for everyone. Before using the self invested arrangement you must speak to your financial adviser.