When the time comes for you to stop working, you don't want to have to worry about your finances. Saving or 'contributing' to a private pension can be a big step towards a more comfortable future by giving you a regular or flexible retirement income.
In its simplest form, a pension is a tax-efficient way to save for your retirement. A private pension is any pension not provided by the state, including personal pensions and workplace pensions.
With a 'defined contribution' workplace pension, you and your employer can make regular payments to your pension during your working life to help build up a pot that will help fund your later life. Tax relief is applied to these 'contributions' and the money invested in funds with the aim of growing the value of your pot as much as possible before you want or need to access it.
The amount you have available in your pot will depend on how many years you have been contributing and how much you and your employer have been paying in. It will also depend on how your pension investments have performed over the years and when you start accessing your pot.
As current pension rules stand, you can choose how and when to access your pot to best suit your individual circumstances. From age 55 you can take a regular income or cash lump sums direct from your pot, or use your pot to provide a guaranteed income or 'annuity'. Typically 25% of the value of your pot can be taken tax-free with the remainder available as a taxable income.
You become entitled to a Basic State Pension by paying National Insurance contributions during your working life. The more years you have paid National Insurance the larger your State Pension, with the maximum entitlement currently based on contributions of 30 years or more.
Like the name suggests, the Basic State Pension is unlikely to give you enough income to fulfil all your lifestyle wants and needs in retirement. In the current tax year (2018/2019), it only gives you £125.95 per week, or if you were born on or after 6 April 1951 (if male) or 6 April 1953 (if female) a new flat rate of £164.35 per week to live on (for tax year 2018/2019). And this amount could be even less if there have been any gaps in your National Insurance contributions record.
You might be able to get more but this will depend on your personal circumstances, for more information visit GOV.UK.
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