How do pensions work?

The first thing to remember is that if you are working and paying National Insurance

, then you will be eligible for a basic state pension.

However, a basic state pension is often not enough to give you the standard of living that you want.

The stats for 09/10 state that if you are a single person then you can expect to receive 95.25 a week, which equates to 4,572 a year. A couple will receive 152.30 a week or 7,310.04 a year - so is that enough?

Although a basic state pension will give you a solid foundation it is also worth considering another source of income for when you finish working.

There are other types of pension that you can have running alongside your basic state pension and given that the government aren't being overly generous, it is definitely something to consider.

Your employer might offer a pension scheme or if this is not an option, then you can start your own.

A pension is a long term investment that you pay into up until the time that you retire. If you have a company pension, then your employer will make a contribution too, helping to build you a greater pot for your retirement.

The money that you pay into your pension will not be taxed, but instead it is put into in stocks, shares and other investments, which enables the pot to grow.

When you decide to retire, your pension fund will be converted into an income that you will receive until the day that you die.

It is worth knowing that you don't have to stop working to start receiving from your stakeholder or personal pension. In some cases you can even continue working for your employer whilst taking your pension.

What is important to consider is that you could be retired for as long as 30 years. With this in mind, you need to make sure that you are provided for as your pension will become your income.

The longer that you have a scheme for, the better off you will be, although you cannot take money from your pension until you are 55. Knowing the basics will help you to save for a better future.

How do pensions work?

By: Jenwa

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