What is a pension?
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In essence a pension is just a
source of income which can be drawn upon after a person finishes their
working life. The word pension often gets used in more specific
contexts such as Company Pensions, Personal Pensions, Stakeholder
Pensions and State Pensions. These are all just different potential
sources of pension income. It is important to remember that money held
at the bank, property, shares, building society bonds and any other
forms of investment are also, in effect, pension savings and can be
drawn upon or cashed in for income in retirement. Remember a
pension is not just a "product", it is more generally any source of
income in retirement. It is important to have this concept in your
head when considering your retirement planning because this planning
should take into account all your potential sources of income in
retirement.
So having a 'pension' really just
means that you are saving in some way or other for retirement. It does
not have to mean that you have a product specifically designed to
provide an income in retirement. In fact currently it is becoming very
popular to invest in property to provide for retirement. However we
are not advocating one form of investment over another and different
approaches will be appropriate for different people with different
appetites for risk and different financial obligations.
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So can I buy a pension?
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Whilst any form of savings can be a
source of income in retirement and hence a 'pension' some products are available
which are called Personal Pensions and/or Stakeholder Pensions and
these can be used to build up money which can be converted into an
income in retirement. They also come with certain tax advantages which
can make them a good choice for funds specifically designed to be used
for providing an income in retirement. These are the sorts of products
that people typically think of when they hear the word pension.
It is these sorts of products that
people typically think of when considering 'buying a pension'.
Personal Pensions and Stakeholder Pensions are described in more
detail in the Individual Pension guide.
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Key principle
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One important thing to remember, no
matter how you intend to provide for your retirement, is that the same
problem exists. You still need to save enough money while you are
working to provide you with a sufficient level of income in
retirement. Some simple arithmetic will tell you that this is not an
easy task. If you are working for 40 years and retired for 25 then you
are going to need to save a lot of money!
Think about it. How much money
would you need to save so you could take 1 year off work and how long
would it take to save that money? If you are planning to take 25 or
more years off work once you get to retirement age then you are going
to have to save plenty of money for plenty of years!
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Read the guide to
investment in the pensions guide. It explains what you need to
think about before investing for your retirement.
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Use our online calculator
to get an estimate of your basic state pension.
Its free and
simple to use you can even include it on your own website!
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Get the FREE Pension calculators from Essential Pensions.
No money, no
registration, just include one line of HTML in your web page.
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Tell a friend about
Essential Pensions. Send an automatic message to your friends
email account about the site.
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