Pensions Guide

Introduction
Just what exactly is a pension?
What about the State Pension!  
What does SERPS stand for and what is it?
State Second Pension (S2P)
Company (Occupational) Pensions
Personal Pensions
Self Invested Personal Pensions (SIPS)
Annuities
Advantages and Disadvantages

Introduction	Top

Sooner or later, we all will retire from our gainful employment to spend our twilight years trying to do all the things we did not have time for while we were working. At the moment, the retirement age in the UK is sixty-five for men, and sixty for women.
Now, the bean counters have worked out that the average length of retirement for a man is sixteen years, and the average length for a woman is twenty-six years, so although I am sure most of you reading this will outstrip the bean counter’s predictions, it does at least give us some idea about how much income we will need to provide for our retirement. To make sure we are able to continue to live our remaining years in relative comfort, we will need to make financial provisions to ensure that we will have enough of an income to see out the rest of our lives. Now, unless you are lucky enough to have enough money put away, are very good at roulette or have a rich uncle or aunt, so you do not have to worry about trivial things such as bills, food, rates, etc, the rest of us will need to have some kind of pension fund that will pay us an income for the rest of our lives.

There are various ways of building up a pension fund for your retirement, invest in property, rare paintings, gold jewelry, etc. You could keep all your money under the bed, although not a very good idea with inflation looming and higher interest rates being paid out by the banks. You could invest your savings in that gold mine in Peru that pays 100 percent interest. However, unless you are a financial expert or a very lucky gambler, the best way to ensure a comfortable old age is to set up a pension fund, and it is important to note that the earlier in your working career you start your pension fund, the bigger the pension pot will be when you retire.

A pension is an income that you get when you retire. To get one, you have to save enough money during your working life, so that the money saved provides the income for your retirement. To make you feel better about saving for your retirement, the Government gives us tax incentives. If a pension scheme is within the rules set by the Government, the money that goes into it comes from your pre-tax earnings. In other words, the Government tops up your pension pot with the tax you would have paid to them. Like all things in life, there is a limit to the amount you can pay in. The limit will depend on what type of pension scheme you are contributing to.With some pension plans, the older you are, the more you can put in.

Your savings pot forms a pension fund, which is invested over the years until your retirement. Then your pension pot is paid back to you in the form of an income, and you all live happily ever after. However,  pension rules are extremely complicated, in fact, far more than they need to be, and the new rules due to come into effect soon are adding to the confusion. You need to undertake due diligence at all times when deciding on what type of pension to invest in, more about this later on. 

In 1978, SERPS (State Earning Related Pension Scheme) was introduced. Its main aim was to provide a pension for people that did not have a company or occupational pension plan. Up until 2002, providing you were employed, a part of your National Insurance contributions went towards your State Earnings Related Pension Scheme (SERPS). Depending on what additional contributions you made into SERPS during your working life, determined the amount you would receive over and above the state pension when you retired. You were given the option to “opt out” of the SERPS scheme if you wanted to and pay contributions into a personal pension scheme instead.