Pension Guide

The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.

Tax treatment varies according to individual circumstances and is subject to change.

Types of pensions

State Pension-This is something most people can claim when they reach State Pension Age. To find out your State Pension age use the calculator on the GOV.UK website. The amount of State Pension you get depends on your National Insurance record and how many qualifying years of NI contributions you have.

Those of you who don’t have enough qualifying years to be able to get a full state pension may be able to make up the gaps in your National Insurance contributions by paying voluntary contributions. However you should be aware there are time limits for paying these, more information on this can be found on the GOV.UK website.

Personal Pension-Anyone can have a personal pension, it is quite simply a way of saving for your retirement. You would make regular payments into your pension fund which is invested with the aim of increasing the amount in it before retirement. Whilst many people have both personal and workplace pensions those who may want to consider a personal pension are:

  • Those who are self employed or not working
  • Those who are not eligible for automatic enrolment into your employer’s pension scheme


Stakeholder Pension-This type of pension works very much like a personal pension with the following exceptions:

  • For the first 10 years the pension provider cannot charge more than 1.5% of the funds value for administering the pension, then 1% thereafter
  • There is a minimum contribution which is set at £20 per month but you can pay in as much as you want to above this amount
  • You can choose how and when you pay into your fund; there is no need to make regular payments
  • If you choose to move your fund to another stakeholder scheme or pension at any time there is no penalty to do this

If you want a lot of flexibility in how much you pay and when you pay into your pension a stakeholder pension might be a good option for you.

SIIPS (self invested personal pensions)

Unlike personal, workplace and stakeholder pensions where your investments are managed for you, SIPPs give you the freedom to choose and manage your own investments. Because of the risks involved in self management SIPPs usually have higher charges than other pensions.

SIPP providers include fund managers, pension consultants and insurance companies.


Tax relief on pensions

Subject to an annual allowance, if you are under 75 you will get back the tax you have paid on all contributions. Usually this will go straight into your pension pot.

You get 20% tax back from the Government unless you are a higher rate taxpayer. Those who pay a higher rate of tax can claim an extra 20%, top-rate taxpayers an extra 25%. Those who are in a workplace pension may not need to reclaim any tax as your employer may simply deduct less tax from your wages.

Please note, if you don’t make a reclaim the tax won’t be paid. We would advise people to check if you are in a higher tax bracket. More information can be found here.

How much should you put into a pension fund?

The earlier you start the longer you will have to build up your pot. The sums are therefore quite easy, the later you start the more you will need to contribute each month. A guide to how much really depends on what you as an individual require from retirement, but as a guide for a comfortable retirement work on the following: Take your age when starting a pension fund and halve it. This is the % of your monthly salary before deductions that is recommended to be put into a pension pot. So an example would be: Current age 24,halved would be 12, so 12% of monthly salary into your pension. The Money Advice Service has a pension calculator you can try.

It’s really important to keep contributing and not to miss a month. As your pay rises make sure you increase your pension contributions accordingly to ensure you don’t fall behind.


In the past, many workers missed out on valuable pension benefits, because their employer didn’t offer them a pension or they didn’t apply to join their company’s pension scheme.

Automatic enrolment changed this. It makes it compulsory for employers to automatically enrol their eligible workers into a pension scheme. The employer must also pay money into the scheme.

Currently the minimum contributions are as follows:

  • Employer pays-3.0% of your qualifying earnings
  • You pay 4% of your qualifying earnings
  • The government adds tax relief of 1% of your qualifying earnings

Only workers aged between 22 and State pension age and earning more than £10,000 per year will be automatically enrolled by their employers.

You can access this pension when you reach your state pension age but until that time it will be held for you by a pension provider.