We all look forward to the day when we can stop working, but you will need to plan carefully if you want your retirement to be comfortable.
Putting away a portion of your income for a pension may seem like a pain right now, but if you want to have a good income in your later years, you will need to save for as long as possible. Not only that, but putting money into a pension has a lot of benefits. You don't have to pay taxes on the money you put in, and your plan may include extras like life insurance or lump sums.
People are putting more and more money into private pension plans and long-term savings. This is because the state pension is likely to become less important as the population ages.
Public pension
At the moment, a single person's basic pension is GBP82.05 a week. This depends on whether or not you paid enough into the National Insurance system while you were working. Even if you pay off your mortgage by the time you retire, would that be enough to live on? Keep in mind that the age at which you can start getting your pension (currently 65 for men and 60 for women) is likely to go up soon and keep going up.
Pensions from work
Most employers will have some kind of pension plan. The terms and details of these vary from company to company, but they usually fall into one of two basic types: "final salary" schemes, which are based on your salary and how long you've been paying into the pension, and "money purchase" schemes, which are based on how much you put into the fund. When you retire, you buy an annuity, which is a kind of insurance that gives you a steady income. Money purchase plans can be more flexible, but they can also be a little riskier.
Pensions for people
There are many different ways to invest in these plans, such as through investment trusts and unit-linked plans that depend on the price of shares. Personal pensions work a lot like company pensions, but you have more control over how your money is invested. There are limits on how much you can put into a personal pension right now, but that will change in 2006.
The rules about pensions change all the time, and in the next few years, they are likely to change in big ways. Check out the Pensions Advisory Service at www.pensionsadvisoryservice.org.uk for up-to-date advice.
