Shopping around for the annuity that best suits your needs
An annuity is a regular income paid in exchange for a lump sum, usually the result of years of investing in an approved, tax-free pension scheme.
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Salary Sacrifice
Waiving all or part of your salary in return for a preferential sum
In the context of retirement planning, salary sacrifice (sometimes known as ‘salary waiver’) is a contractual agreement to waive all or part of your salary in return for your employer contributing a preferential (equivalent) sum into your pension plan.
For a salary sacrifice to be effective, it must be ‘given up’ before it’s subjected to tax or National Insurance Contributions (NICs). This allows you to save the entire amount of your sacrificed income in your pension plan free of tax and NICs.
Types of pensions
Deciding on your options
There are three types of non-State pensions. Some are offered by employers and some you can start yourself. They are:
Personal pension plans through your employer
Options available when an occupational pension is not provided
Your employer is required to offer you the chance to join a pension scheme. If an occupational pension is not provided then this would normally be a stakeholder or alternative personal pension.
Transferring your pension
Much will depend upon your individual circumstances and objectives
Pension transfers can be complicated and you should always seek professional financial advice before going ahead. If you’re thinking about transferring your pension(s) into a new personal pension plan or Self-Invested Personal Pension (SIPP), remember; whether a transfer is suitable or not will very much depend upon your individual circumstances and objectives.
Occupational pensions
Joining your employer’s scheme
Occupational pension schemes vary from company to company. Your scheme is likely to be one of two general types, final-salary related or defined contribution scheme.
Extra State Pension
Putting off your claim for at least five weeks
By choosing to put off claiming your State Pension you can receive an extra State Pension. You must put off your claim for at least five weeks. For every five weeks you put off claiming you can earn an increase to your State Pension of one per cent. Extra State Pension is paid on top of your normal weekly State Pension. It continues for as long as you are getting State Pension. Extra State Pension is increased each April in line with increases to your State Pension.
Changes to the State Pension age
A gradual increase over two years every decade
State Pension age is the earliest age at which you can claim your State Pension. It is currently 65 for men and 60 for women. However, the State Pension age is changing and will increase between 2010 and 2046.
Currently, the State Pension age is 65 for men born before 6 April 1959. For women born on or before 5 April 1950, State Pension age is 60.
The additional State Pension
Important changes on the horizon
The additional State Pension, or State Second Pension, is paid in addition to the basic State Pension. Your entitlement to the additional State Pension (whether from SERPS – State Earnings-Related Pension Scheme, or from the State Second Pension) is calculated when you claim the basic State Pension.
The basic State Pension
Building up enough ‘qualifying years’
The basic State Pension is a government-administered pension. It is based on the number of qualifying years gained through National Insurance Contributions (NICs) you’ve paid, are treated as having paid or have been credited with throughout your working life.
– If entitled, you can receive the basic State Pension when you reach State Pension age. This is 65 for men born on or before 5 April 1959 and 60 for women born on or before