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Saving for your retirement is one of the most important financial plans you can make. You can choose to save in a pension scheme and/or a savings plan, but whatever you decide, you'll want your funds to grow and be worth as much as possible in the long term.
Pension schemes are a form of saving for retirement. The sooner you start, the more time you will have to earn interest on your savings - and you can always increase your payments later on. There are several different types of scheme.
Your State Pension is based on the number of qualifying years you have, calculated on the National Insurance contributions you've paid, have been treated as having paid or have been credited with.
You can claim it at State Pension age, which is 65 for men and 60 for women born on or before 5 April 1950. The State Pension age for women born after 5 April is rising from 60 to 65 between 2010 and 2020. It will also increase for both men and women from age 65 to 68 between 2024 and 2046. You can also choose to delay claiming your State Pension.
Company pensions are set up by employers to provide pensions for their employees on retirement. If you are able to join one, it's worth considering as most people will be better off in retirement than if they had not joined.
Personal pensions are available from banks, building societies and life insurance companies. Some schemes allow you to start taking your pension from the age of 50 (increasing to 55 by 2010) and to take part of your pension fund as a tax-free lump sum payment.
Stakeholder pensions, a flexible type of personal pension, allow you to start and stop your contributions when you want.
Most contributions to pension schemes attract tax relief. For example, for every £80 that goes into a basic-rate tax payer's personal or stakeholder pension, the government puts in a further £20. Higher rate taxpayers can claim the extra tax back.
There are several other tax-efficient ways of saving and investing money for retirement.
With an ISA you don't get tax relief on the contributions you make but you don't pay tax on the interest or most dividend income earned, or on 'capital gains' if you later sell the investment at a profit.
NS&I offers one of the most secure ways to save and invest money because it's backed by the government. Some schemes pay interest that's taxable, while others are tax-free.
Many NS&I schemes are long-term investments, that may be suitable for saving toward your retirement.
If you save your money in a bank or building society account, your funds should grow – at least enough to stay ahead of inflation.
If you want your funds to grow more quickly, you could consider investing them. Bear in mind that most investments carry a risk – your funds can rise or fall in value. The amount of pension you get may depend on how well the scheme’s investments have performed by the time you retire. Investments include, for example, stocks and shares, bonds and collective investments and property. Follow the link below to find out more.
It's best to shop around and get professional advice before deciding where to invest your money.
Saving in more than one pension scheme can give you flexibility and choice, but it can also lead to you paying more in administrative costs.
You do not have to retire when you reach State Pension age. Working for longer can help you build up a better income for when you retire, as well as giving you more money now. You can put off receiving your pension until later and get more State Pension each week.
Alternatively, you may not want to retire from work altogether. You can continue to work while you claim your State Pension.
You can shop around and compare products yourself, but it's also a good idea to get professional advice. If you buy based on 'information' only you have less protection than if you buy after taking advice.
The FSA has useful information about savings, investments and pensions. It also produces booklets on planning for retirement.
TPAS offers free advice on personal and company pensions.
The Pension Service provides information on the State Pension.
