A pension scheme is simply a way of saving money now and investing it in order to use as income when you stop working. You can access the money in your pension from age 55. It also has lots of tax advantages compared to other ways of saving for your retirement. Find out more about pension tax relief.
There are many different types of pension scheme. Your employer may offer a pension scheme which they pay into, or you may choose to set one up yourself. There’s also the state pension which is provided by the government.
When you decide to retire, you have a number of options for taking your pension income. With many pensions you can take a tax-free lump sum, and others offer a regular income.
There are three main different types of pension:
The Nutmeg pension is a type of personal pension. You can pay into a personal pension as much as you want. Generally, you can get tax relief on up to £40,000 per year or the value of your annual salary, whichever figure is lower. If you’re a basic rate taxpayer, the government adds 25% of any amounts you put in. If you pay a higher rate of tax, then you can claim even more via your tax return form. Find out more about pension tax relief.
You can start a Nutmeg personal pension with as little as £5,000 and make further contributions in regular instalments or ad hoc lump sums.
You generally cannot withdraw any money from your pension until you're 55.
Many people also have a pension scheme with their employer, known as a workplace pension. Typically, you will automatically pay a percentage of your monthly salary into the scheme and your employer may match those contributions, up to a certain amount.
Find out more about how pensions work.
You may also make national insurance contributions out of your salary, which could entitle you to a state pension when you reach retirement age. The current maximum state pension available is £122.30 per week. This figure rises to keep pace with inflation. The state pension age currently 65 for men and 60 for women. From 2020 the state pension age for men and women will be 66, increasing to 67 between 2026 and 2028, and to 68 between 2037 and 2039.