UK Pension - Everything you need to know about UK Pensions

What is a Pension?

A pension (also referred to as a pension scheme or retirement plan) is a long term financial arrangement where you contribute regularly to accumulate a pension fund that provides you with a regular weekly income when you retire, i.e. when you are no longer earning a regular income from paid employment.

The main difference between a pension and other types of regular savings and investments is that in the UK pensions currently have the following tax advantages:

Your regular savings amounts get tax relief, i.e. if you save £80 per month this could turn into £100 per month as a result of the government giving you back the tax you would have normally paid on it, depending on your tax rate.

Capital gains and income tax are not charged as your savings grow.

You can take up to 25% of your savings out as a tax free lump sum when you retire.

You can pay as much as you like into a pension scheme but tax relief is only available up to a maximum of 100% of your earnings.

The original intention of the 'Old Age Pension' was to prevent poverty in old age and this is still true of the current basic state pension scheme introduced by the Government in 1948. In 1909 you had to be 70 years old to claim the pension, which subsequently changed to 65 for men and 60 for women.

The state pension, known as "Old Age Pension" was introduced to the UK in Jan 1909, following the passing of the Old Age Pensions Act 1908.

From 2010 this is gradually being equalised again for women, with the state pension age increasing by half a year each year to become 65 by 2020. The Government plans to gradually increase it back up to 68 for both men and women by 2046.

The minimum age you can start drawing from a pension fund is 55, as at 6 April 2010, and you can defer drawing from your pension until age 75 if you want to continue working or have other income to support you.

A mixture of state, public sector and private sector pension schemes are available in the UK. The variety and complexity of UK pensions can make them very confusing, whether you are just starting to think about organising a pension or are close to retiring. So, in addition to the Basic State Pension this booklet looks at the other different types of pensions, along with things to consider, to enable you to make an informed decision about which type of pension might be right for you.

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