Pensions: Frequently asked questions
 What is a pension?
What is an occupational pension?
What about the Stakeholder pension?
Why do you need a pension?
What were the pension selling scandals?
How safe are pensions now?
How much should I save for a pension?
Can I have more than one pension?
What's the best way to buy a pension?
Should I pay the pension sales person Commission or Fees?
Why bother with a private pension?
What do the experts do with their own money?
What happens to my pension when I die?
Who's behind Pensionsorter? What's in it for you?
See how you can get the cheapest Stakeholder pension
What is a pension?
A pension is a way of saving money to ensure a comfortable retirement. In the UK it has major tax benefits which make it the best type of retirement plan for the vast majority of people, who, unless they're rich, really do need to save for old age. While there are alternative ways of saving the pension is generally the best option for most people.
There are personal pensions, the new Stakeholder pension and occupational pensions. (See How does a personal pension work etc.).
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What is an occupational pension?
Occupational pension schemes (also called Company Pension schemes) are when the employer organises a pension scheme for its employees. It is set up as a trust and run by trustees.
Occupational pension schemes are either Contributory - where you give part of your earnings (typically 5% of your gross salary) in addition to your employer's contribution, or Non Contributory where your employer makes all the payments. In either case they have to pay for a substantial part of the admin. costs of the pension scheme, by law. And you also get tax benefit from the Inland Revenue (see Tax benefits for Occupational pensions).
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What is a stakeholder pension?
This is the new type of pension which the government is hoping will make more of us save for our old age. It was supposed to be aimed at those on "moderate earnings" ie between £9,500 and £21,600 pa. However anyone can get one, even those who aren't earning eg babies and grannies.
It features low charges and flexiblity eg you can vary payments. It's everything that the personal pension should have been really.
Read more about the Stakeholder now
See how you can get the cheapest Stakeholder pension
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Why do you need a pension?
The current life expectancy for men is 81 which means an average retirement of 16 years and it's 86 for women, which means an average retirement of 26 years. And we're growing older all the time.
The State Pension will only suffice if you're happy to live on £75 a week or so. If you want to be warm, well fed and have a reasonable income then you need to start a pension and do it SOON. Every month you wait can make a significant difference (see the cost of delaying and/or Savings Calculator).
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What were the pension selling scandals?
There are various incidents which have given pensions a bad name in recent years. The main one being the personal pensions scandal of the 80's and early 90's. People who were persuaded wrongly to move away from their occupational pensions into personal pensions during the late 80's and early 90's were worse off as a result.
Sadly there have been other problems for example the Mirror Group pension fund stolen by Robert Maxwell, the problems with Equitable Life and so on. See Pensions Selling Scandal for the fuller story.
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How safe are pensions now?
Much safer than before the scandals: If you are sold a pension by an IFA which is anything but very particular to your needs you can get compensation. (But not necessarily if you buy direct see Execution Only.
After the Maxwell scandal, the Pensions Act of 1995 tightened up the management of occupational pension funds. The Occupational Pensions Regulatory Authority (OPRA) was created. The responsibilities of trustees (who now include external professionals as well as employees) were increased considerably. It is now obligatory for the occupational pension fund's external advisers to act as whistleblowers if they think something is wrong.
The new regulator, The Financial Services Authority, seems to have sharper teeth and be hungrier to seek out bad practice than previous responsible bodies.
On 6 April 2005 the Pensions Regulator took over from Opra (the Occupational Pensions Regulatory Authority). The Pensions Regulator is the new regulatory body for work-based pension schemes in the UK.
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How much should I save for a pension?
Most people hope to retire on two thirds of what their salary is at retirement. To achieve this depends not only on how much you save but also on how well your fund managers perform, as you will see from the Savings calculator.
But, regardless, the sooner you start saving the better. The later you leave it the higher your contributions ie payments would have to be
For more on this see The cost of delaying and It's never too late to start a pension.
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Can I have more than one pension?
You can have as many personal pensions as you like provided that added together all your payments / contributions do not exceed your tax break limits. At the time of writing this is no more more than 17.5% of your income if you are under 35 and so on. (See Contribution limits for personal pensions).
You can only be contributing to ONE Occupational pension plan AT ANY ONE TIME. This means you could actually have many different former ones operating at the same time, so long as they're "dormant" i.e. you're not making payments / contributions. But they're still invested and hopefully growing for you. (This would be if you had left previous jobs and not transferred your occupational pension fund).
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What's the best way to buy a pension?
To give you the best tips we've got an extensive section on this called How to Buy a Pension including "The Golden Rules for buying a pension".
In our view the best way to buy a pension is to go straight to an IFA (see It's best to use an IFA).
However if you do your homework fairly thoroughly then you could save money by buying direct from a pension provider. But you will have to be careful because it seems your chances of compensation would be limited if the pension isn't right for you compared to if you go through an IFA (see Execution Only and Buying direct is not always best).
See how you can get the cheapest Stakeholder pension
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What happens to my pension when I die?
If you die before you retire your pension fund will normally be paid to your beneficiaries. To avoid inheritance tax you should ensure you have put your pension fund "in trust". (Ask your pension provider).
If you die after you retire what happens would depend on the deal you did for your annuity.
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Should I pay Commission or Fees?
The number of fee based IFAs has grown rapidly in recent years. The idea with fees is that you pay these charges up front so that there's no suggestion that the IFA is reliant on any commission for the pension plan they recommend i.e. the advice is genuinely independent.
The standard charge at the time of writing is £75 an hour (usually after a free initial meeting). But when you've added all the letters and follow up you may find that paying commission would have been cheaper. The IFA should be able to give you a quote. But it's most likely to be an estimate and the problem is, you see, that no one's finances are as simple as may first appear... Alternatively they may charge on a transaction basis e.g. you pay a set amount for a report. Though remember; if you don't follow the IFAs advice you're still paying for it.
Many IFAs will give you a guaranteed fee ceiling.
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Why should I bother with a personal or occupational pension? Can't I rely on the State Pension?
The State Pension will only suffice if you're happy to live on £75 a week or so. If not you need to boost this with extra income a private pension is seen as the best way of saving for most people.
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What do the experts do with their own money?
Keeping many eggs in many different baskets seems to be the approach favoured by the financial experts. So they might be investing in their own home as well as having a personal pension and several other investments in different markets.
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Who's behind Pensionsorter? What's in it for you?
This website has been written by non-finance professionals. We tried to buy pensions ourselves and became fed up with the difficulty of getting accurate, easy to understand, information. So we researched the field for a few months and this is the result.
It is a completely independent, free information service, which can either be used for help with buying a pension, improving an existing pension, or general research. It's really a labour of love but we may get a modest fee from an IFA for "introducing" you to them. If so, this shouldn't cost you anything extra, and at least some of any profit will go to a genuine, highly deserving charity.
You may like to give a donation to a charity in return for all this free info. Read more about this.
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