When you are young and living life to the full, the last thing on your mind is retiring. The term pension is mystifying and quite simply unsolicited.
However, it is crucial that you start thinking about starting a pension in order to create a lucrative nest egg. The earlier you start saving the more money you’ll have when it comes to finishing work.
But what really are they, how do they work, where can you get one and why are they even necessary? If you are considering taking early retirement, this will have a huge impact on your pension, therefore you need to know exactly what you’re doing in order to keep your finances in check.
Here is a useful guide to help you understand the ins and outs of pensions, so you can make an educated choice about your finances.
1. What is it?
The State Pension is money from the government when you reach state pension age. Everyone in the UK qualifies for it as long as you have been paid or credited with National Insurance contributions. At present, (Dec 2013), you get £110.15 a week but it increases every year. This is based on 30 years’ worth of contributions or credits to get the full basic amount.
As you can understand, this isn’t a lot to live on so many people also set up another pension either with their work or with a private company. When you quit work you will need an income of some sort to carry on paying bills and expenses- this is where a pension comes in.
2. Where can I get one?
As aforementioned, you get a State Pension from the government but you can also get one privately. The top 5 private pension providers at this time are Virgin, Sippdeal, Fidelity Personal, Hargreaves Lansdown and AEGON.
With regards to your State Pension, you have to claim to get it as you don’t get it automatically. You should receive a letter four months before you reach State Pension age but if you haven’t got a letter by three months before, you need to claim.
You can do this by calling 0800 731 7898, claiming online or downloading the claim form and sending it to a local pension centre.
3. When can you get it?
The earliest you can get is when you reach State Pension age. There is a calculator that you can use which helps you to work out when this is, as it all depends on the number of years you have worked and paid NI contributions, or got certain benefits.
4. Who can get it?
You are eligible for a State Pension as long as you have one of the following:
- working and paying National Insurance contributions
- getting certain benefits such as unemployment or sickness
- you were a parent or carer and claiming certain benefits or credits
- you have a spouse or civil partner whose National Insurance contributions cover you
- you were paying voluntary National Insurance contributions
Since April 2010 you get credits if any of the following apply:
- care for a child under 12
- care for someone sick or disabled
- registered foster carer
- get Carer’s Allowance
If you’re not eligible in any of these groups but still want a State Pension, you may be able to pay voluntary National Insurance contributions.
5. Why get a pension?
If you want to enjoy the last few years of your life relaxing and having fun, you need to have enough money saved up to fund such a lavish lifestyle. A state pension will cover your basic needs but it’s best to have another pension to subsidise your standard of living.
There has been a rise in the number of older people living in poverty, so it’s not really a question of why you should have one but simply what would you do without one?
Now you should know the ins and outs of having a pension. If you don’t have one already, all that is left to do is to start one as soon as possible and get saving for your retirement.