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Did you know?

Nearly 9 million workers in the UK are neither saving for a pension nor have a partner who is saving for retirement. Presumably they are relying on the state. In 2006/7, the average state pension for recently retired pensioners was £103 a week for single pensioners and £157 for couples.
Pension Commission, First report, 2004; Department for Work and Pensions, Pensioners Income Series.

On average nearly a third of adult life is spent in retirement. Funding such a long period is expensive.

You may be tempted to put off starting to save - especially if you are paying off student debts, trying to buy a home, or raising a family. But the later you leave it, the harder it is to build up enough to pay for a reasonable retirement (see table below).

Don’t expect too much from the state. The basic state pension is less than a fifth of the national average earnings. To enjoy a comfortable retirement, you need to build up your own savings too.

Are you married?

You might be relying on your partner to build up the family’s retirement pot. But it’s sensible to protect yourself in case you split up in the future. The best way to do this is to build up some of the family’s savings in your own name. If you can’t afford to save, ask your partner to pay into a personal pension for you (see 'Action to take now!').

There are two main ways of doing this:

  • An occupational pension scheme. These are offered through your work. A big advantage is that your employer usually has to pay into the scheme on your behalf. As well as a pension upon retirement, occupational schemes usually give you a package of benefits. These include a pension if you have to retire early because of ill health and financial support for your dependants if you die before or after retirement. Not all schemes will pay benefits to an unmarried partner – you need to check.
  • Personal pensions (including stakeholder schemes). These are typically run by insurance companies. You either sort out a scheme for yourself or you may have access to a scheme through your workplace (called a group personal pension scheme). Your employer does not have to pay anything into the scheme but might agree to do so. With personal pensions, a lump sum is normally payable if you die before you retire but it is usually up to you to decide what other benefits, if any, you want to add to the package. Unmarried partners can receive these benefits.

You don’t have to save through a pension scheme but there are tax advantages. You get tax relief on your contributions, your savings build up largely tax free, and you can take part of your savings at retirement as a tax-free lump sum instead of taxable pension.

From 2012, a new national pension scheme is due to start. Unless your employer offers a scheme that is at least as good, you will be automatically enrolled into the national scheme and have your own personal account (similar to a personal pension). Your employer and you will both have to contribute - you’ll have to pay in 4 per cent of your pay and your employer 3 per cent. A further 1 per cent will come from tax relief. You will be able to opt out if you want to, but then you’ll lose the benefit of your employer’s contribution.

How much you might need to save to provide £100 a week from age 65 [1]

If you start saving at this ageYou’d need to save this much each month 



Women [2]










Who gets any death benefits?

Most occupational schemes and personal pensions are set up so that the scheme decides who should get any lump sum and dependants’ pensions if you die. That way, payments can go direct to your survivors instead of being paid to your estate where they might be taxed and would be held up until probate had been granted.

Make sure you fill in a form from the scheme nominating the person you choose to receive the death benefits and, if circumstances change, remember to alter the nomination. The scheme will normally do as you asked but can override your wishes if anyone else comes forward and proves they were financially dependent on you.

[1] All amounts in today’s money. Assumes 5% a year investment growth during the last 10 years before retirement and 7% a year growth before then, 1% a year charges, 2.5% a year inflation and that your contributions increase in line with earnings. When considering long-term investment, it is more suitable to use general assumptions like these than to assume present short-run conditions will continue to apply.

[2] Women need to save more because they tend to live longer than men. This means women’s pensions are on average paid out for longer and so cost more.

Pension contributions

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April 2009

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