Saving for retirement
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.
Types of pension scheme
Pension schemes are a form of saving for retirement. 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. For men born before 6 December 1953, the current State Pension age is 65.
For women born after 5 April 1950 but before 6 December 1953, their State Pension age is between 60 and 65.
Under the Pensions Act 2012 (NI) women’s State Pension age will increase more quickly to 65 between April 2016 and November 2018. From December 2018 the State Pension age for both men and women will start to increase to reach 66 in October 2020.
You can use the State Pension age calculator to work out your State Pension age. The State Pension age calculator will tell you when you’ll reach State Pension age under the current law.
- State Pension age calculator (GOV.UK website)
- Qualifying for basic State Pension
- Understanding the additional State Pension
- State Pension deferral - taking up your State Pension later
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 55 (as of April 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.
Tax relief on pensions
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.
Tax-efficient savings and investments
There are several other tax-efficient ways of saving and investing money for retirement.
Individual Savings Account (ISA)
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.
National Savings and Investments (NS&I)
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 towards your retirement.
Investing your money
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. 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.
Getting advice on saving for retirement
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.
Financial Services Authority (FSA)
The FSA has useful information about savings, investments and pensions. It also produces booklets on planning for retirement.
- Financial Services Authority (contacts section)
The Pensions Advisory Service (TPAS)
TPAS offers free advice on personal and company pensions.
Nortern Ireland Pension Centre
The Northern Ireland Pension Centre provides information on the State Pension.