How pensions work

Pensions you get from your employer and pensions you start yourself differ. Make sure you understand what's available to you and how they work.

hat is a pension?

Pensions are long-term investments with special tax rules – for example, you get tax relief on contributions.

You can generally access the money in your pension fund from age 55. You don't have to stop working to do this.

How does it work?

The way your pension works will depend on the type of pension you have. There are three main types:

• occupational salary-related schemes – offered by some employers;
• occupational defined contribution schemes (also known as money purchase schemes) – also offered by some employers; and
• stakeholder and personal pensions – you can start these yourself, or you may be offered a stakeholder pension or a group personal pension at work. These are also money purchase pensions.

Pensions at work

If your employer offers a pension scheme it's a good idea to find out what type it is and how you can join. Your employer makes all the arrangements and may even contribute to it.

In future all employers will have to offer and contribute to a pension to help more people save for their retirement. Employers who haven't offered an occupational pension in the past may set up their own scheme, or may pay pensions into a new central scheme called National Employment Savings Trust (NEST). The requirement on employers will be introduced in stages from 2012, although, at the time of writing, a three-month review into some of the provisions relating to NEST has been announced.

Pensions you start yourself

All employers with five or more employees have to offer access to a pension scheme. If your employer doesn't offer a pension, there are lots of pension providers for you to choose from to take out your own pension. You can go to a provider direct but bear in mind that their representatives can only advise you on their company's own products, or ones they have adopted from other companies. Alternatively you can get help in choosing a pension and provider from a financial adviser.

""NO DECISION ON LUMP SUM INVESTMENTS AND PENSIONS SHOULD BE TAKEN BASED ON THE CONTENT OF THIS SITE. ALWAYS TAKE FULL INDIVIDUAL ADVICE FIRST. THE REGULATIONS GOVERNING TAX RATES AND INVESTMENTS MAY CHANGE IN THE FUTURE.""