Along with the State Pension from the government, there are 2 main types of pension:
- defined contribution – based on how much money has been paid into your pension pot
- defined benefit (final salary or career average) – based on your salary and how long you’ve worked for your employer
You can check which type of pension you have – this will help you find out if you can have a Pension Wise appointment.
These are sometimes known as ‘money purchase’ pensions. They can be personal pensions arranged by you or workplace pensions arranged by your employer.
The money paid in by you or your employer is put into investments by your pension provider. The amount you get when you come to take your pot depends on how much was paid in and how well the investments have done.
The value of your pot can go up or down depending on your investments.
With defined contribution pensions you decide how to take your money out.
Types of defined contribution pension
- Executive pension plan
- Group personal pension
- Master trust pension (eg NEST, NOW pension, the People’s Pension)
- SIPP (Self Invested Personal Pension)
- SSAS (Small Self Administered Schemes)
- Stakeholder pension
Pension Wise only provides guidance on what you can do with a defined contribution pension. For guidance on a defined benefit pension go to The Pensions Advisory Service.
Defined benefit (final salary or career average)
These are sometimes known as ‘final salary’ or ‘career average’ pensions. Defined benefit pensions are nearly always workplace pensions arranged by your employer.
How much you get depends on your salary, how long you’ve worked for your employer and a calculation made under the rules of your pension scheme.
Your provider guarantees a certain amount each year when you retire.
The State Pension
The pension you get from the government is called the State Pension. You get it when you reach State Pension age.
You don’t normally get it automatically – you have to claim the State Pension.
The most you can currently get from the basic State Pension is £119.30.
If you reached State Pension age on or after 6 April 2016 you’ll get the new State Pension.