Which pension will I receive?
Pensions are incredibly important, safeguarding a person's quality of life after they've retired. If you're planning your pension or approaching pension age, it makes sense to understand the varieties of pension available, and find out which you're a member of.
The State Pension
Adults are entitled to The State Pension depending on the years of National Insurance contributions or credits they have. They can be received after turning a certain age that's dependent on your birth date – check your State Pension age using the government's tool by clicking here.
There are two types of State Pension currently in force. The State Pension, applicable to those reaching pension age before April 6th 2016, and the New State Pension, given to those reaching the age on or after this date.
The maximum State Pension is given to those who have 30 years of NI contributions to their name, with this decreasing as the number of years NI was paid decreases. The State Pension rises each year in line with UK earnings growth, prices growth, and an interest rate of 2.5% - the triple lock.
You may be entitled to the Additional State Pension depending on your National Insurance contributions. There’s no set amount, but the money you receive will depend on the benefits you claimed and how much you earned whilst working.
New State Pension
If you have paid NI for 35 years or more, you'll receive the maximum New State Pension each week. If you paid NI for less than 35 years, the amount you receive will decrease in kind, while if you have less than ten years of payments (and didn't pay married woman or widow's contributions), you won't receive the State Pension.
The Additional State Pension is not available if you reached State Pension age on or after 6 April 2016. In effect, the New State Pension is a combination of the State Pension and Additional State Pension.
You can check how much State Pension you'll receive by applying for a statement here.
Defined contribution pensions
The most common form of pension, defined contribution schemes see employees (and employers, under the government's workplace pension scheme, in total effect from 2019 onwards) pay into a pension pot that is then paid out after they retire.
There are a number of different options available to those wanting to withdraw money – it can continue to accrue interest or investment returns, be taken as a lump sum, or be paid as an annual income (known as an annuity).
- Workplace pensions
If you work for any business, by 2017 (if not before) you and your employer will have to pay into a pension scheme. This money will then be invested or left to accumulate interest until you withdraw it when you retire.
- Stakeholder pensions
If you're self-employed or a low-paid worker, a stakeholder pension could be a good choice, allowing you to make small payments into a pot that is then invested and handled on your behalf.
- Trust pensions
Some companies operate trust pensions, where cash is managed and invested by a board of trustees, assigned by the employer. The gains from these investments are then used to grow the pension pots of pension members. If the business goes under you will still get your pension but may get not get as much because the running cost of the scheme will be paid by the members’ pension pots rather than the employer.
- Self-invested personal pensions (SIPPs)
SIPPs provide much more investment flexibility than conventional pensions, allowing you to invest almost anywhere and choose your own investments. But with that flexibility comes responsibility. A SIPP is for someone who feels comfortable doing their own research and picking investments independently.
- Group personal pensions
With these, employers will pick a pension provider, who will then ask you where you would like to invest your money. Your employer may make contributions to your pension. This is a mid-point between SIPPs and trust pensions, yet still carries a degree of risk.
Defined benefit schemes
Once the most popular type of pension scheme, defined benefit schemes have fallen out of favour in recent years due to their high cost. With these, your pension will be dependent on how much you earned at a particular company and how many years you worked there.
What will I receive?
Whenever an employer enrols you in a scheme or you sign up to one yourself, you should receive documentation from the pension provider that'll allow you to track and enquire about the state of the particular pot. If you've lost the documentation, but strongly suspect you have a pension from a previous employer, click here to use the government's pension finder tool.
If you know how much is in each pension pot attributed to you, click here to use the Money Advice Services free pension calculator tool in order to find out how much you will receive.
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