What's a pension?

A breakdown of pensions

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Pensions can be a bit complicated and seem so far in the future! However, it’s a good idea to get your head around what a pension is and how much you’ll be paying into one whilst you are working. You will need money to live off once you retire! There are two main types of pension: a state pension and a private pension. Below, we’ll explain a bit more.

What's a pension?

A pension is money that you receive when you have retired. People pay into pensions whilst they work in order to receive it later in life. When pensions are paid, they are usually in regular payments rather than altogether. Not all pensions are the same – across different workplaces, people will have different pension setups. 

 

State Pension

The State Pension is a pension from the government. People pay into this through a tax called National Insurance. National Insurance is taken from your wages in the same way as income tax – you’ll see the amount deducted on your payslip. The age at which you’ll receive your state pension depends on the year you are born. Currently, that age is in the late 60s.

The State Pension does not provide enough money to live off on its own, so people also have a private pension (see below).

Private pension

This is a pension that you pay into throughout your working life through your employer. Your employer deducts a small amount from your salary each month and pays money towards your pension, too. The exact terms of the pension depend on the employer and the scheme they have. Self-employed people will have to set up their own private pension, as they are not employed by an organisation.

Resources about pensions

Some resources for understanding more are:

Image credits
Header image: Ling App
Aaron Burden
Michelle Henderson
Nick Fewings
Glenn Carstens-Peters