What type of pension do you have?

The state pension provides you with a regular retirement income from the government. It is paid to you when you reach your state pension age, which is currently sitting between 66 and 67, but will be rising to 68 by 2046.

You’ll need to qualify for your state pension, which is done via National Insurance (NI) contributions. At least 10 qualifying years of NI contributions are required to receive a state pension, with 35 years needed to get the full amount. Currently, the full state pension is £241.30 a week, but it rises over time.

Evidently, the state pension alone is unlikely to provide enough income in retirement for most people, which is why it’s generally combined with other savings and private pensions. You can check on how much state pension you’re on track to receive, when you can get it, and if you can increase it via the government’s state pension forecast tool. 

You can usually only benefit from paying voluntary National Insurance contributions where they increase your State Pension. Paying additional contributions does not automatically increase your entitlement, so it is important to check with HMRC before making a payment.

Workplace pensions are arranged by your employer and managed on your behalf. They are designed to help you save for retirement while you’re employed. 

They’re relatively straightforward. You contribute to your workplace pension from your salary, your employer tops it up, and the government provides tax relief to those contributions. 

The amount you and your employer pay in will depend on the specific type of workplace pension scheme you’re in, and whether you’ve been automatically enrolled or joined one voluntarily (known as opted in). Let’s say you’re in a defined contribution workplace scheme. Each payday, for example, you pay in £40. Your employer pays in £30, and you’ll get £10 in tax relief, meaning a total of £80 goes into your pension. Also, higher and additional rate taxpayers can also claim further tax relief. 

In 2012, automatic enrolment rules were introduced, which gradually required all employers to automatically place eligible workers into workplace pension schemes. As a result, workers tend to get added to many schemes when they start new jobs, and they can lose track of them over time. 

As part of the retirement planning process, all these workplace pensions should be tracked down, which can be achieved with the government’s pension tracing service. 

Defined contribution (DC) pensions are schemes that are contributed to over time with the aim of building the biggest pot possible to provide you with income in retirement. Workplace pensions fall within the DC bracket, but personal DC schemes can also be set up. 

Generally, the money deposited into a DC scheme will be invested. These investments can rise and fall over time, but the goal is to grow the pension as much as possible. The amount of income that can be drawn from a DC pension will depend on how much has been contributed to it, and the underlying investment performance. 

The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors might not get back their initial investment.

Defined benefit (DB) pensions provide you with an income in retirement that is based on your salary, and how many years you’ve been in the pension scheme. Unlike DC schemes, they pay a guaranteed, regular income for life that increases with inflation. 

It is the employer’s responsibility to ensure there is enough money to cover the scheme. Given how long retirements can last, these schemes have proven very costly. As such, it’s increasingly rare to come across them outside of the public sector.

However, you may have a DB pension from an old employer, so it is worth tracking down any forgotten schemes you may be entitled to. 

Self-invested personal pensions (SIPPs) are a type of private pension that you set up yourself, solely contribute to, and manage. You decide how much is paid in, and how the funds are invested. People may want to set up a SIPP to supplement their wider pension savings and give them a better chance of receiving more income in retirement.

SIPPs provide generous tax benefits, such as tax-free investing, tax relief on contributions, and inheritance tax perks. 

Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. 

From 6 April 2027, new rules will mean most unused pension funds and pension death benefits will be included in the valuation of a person's estate after they die, which means they may be subject to inheritance tax. 

With so many potential pension sources, you may feel overwhelmed with your options when the time comes to retirement. Typically though, retirees could find themselves taking an initial tax-free cash lump sum, drawing down (receiving income) from their pensions, and/or purchasing an annuity that pays out guaranteed income for a specific period of time. 

In the lead up to all this, retirees may want to set out plans to combine all their pension savings and formulate a long-term retirement income plan. Pension transfers require careful consideration. You need to be careful that you don’t lose any guarantees or features, and you should also compare the charges and investment options. 

If you don’t feel confident to decide about pension transfers, and you want more support, you can speak to a financial adviser. 

A financial adviser can assess if a pension transfer is the right thing to do based on your individual circumstances. If you feel like you need a helping hand in getting your retirement plans organised, you can book a free, no obligation call with one of our team.

There are no hidden fees or charges, and you’ll only pay if you choose to go ahead with the recommendations in your personalised financial plan.

This article is for information purposes only. It is not intended as financial advice. 

The retirement benefits you receive from your pension plan depend on a number of factors including the value of your plan when you decide to take your benefits which isn't guaranteed and can do down as well as up. The benefits of your plan could fall below the amount(s) paid in.

Please be aware that by clicking onto the above links you are leaving the Lloyds Wealth website. Lloyds Wealth is not responsible for the accuracy of the information contained within the linked site(s) accessible from this page.

Any views expressed are our in-house views at the time of publishing. This content may not be used, copied, quoted, circulated or otherwise disclosed (in whole or in part) without our prior written consent.