Pensions Explained

Nobody ever really explains to you what a pension is. It’s just one of those things you’re expected to know about. It’s money for when you retire, but pensions often seem to be something other people do for you. A state pension from the government. A workplace pension from your employer.

Your pension is the most effective way to secure your tomorrow. But doing that means taking action today.

What is a pension?

A pension is a long-term savings and investment plan that pays out once you reach a certain age. There are three broad types of pension that you might have access to in retirement:

The state pension. This is a standard payment from the UK government, paid out to eligible citizens once they reach the age of 66. In the next few years, that’ll rise to 67, and will steadily keep on rising over the decades. The current state pension is £221.20 per week, which probably isn’t enough for a comfortable retirement (depending on how you want to live). You fund your pension through your National Insurance contributions. Pay less in NI, you’ll receive less as a pension.

You’ll also get less if you haven’t paid National Insurance for 35 qualifying years, which could leave you with even less than you think. If you’re not sure, you can head to the gov.uk website and see what you’re set to receive. 

Workplace pensions. Unless you opt out, your employer has to enrol you in a pension scheme. Each month, they take a certain amount of your salary, add their own contribution and it all goes into your pension pot. The amount you receive depends on your wage, your employer contributions, and the scheme your employer chose for you - with a government-mandated minimum of 3% of your wage from your employer, 5% from your own wages. If you move jobs often, you’ll potentially have a whole host of small pension pots.

Private pensions. A private pension is one that you control. You choose where to invest your money, how much to pay in each month, and the age at which you can withdraw from that pension. If you’re focused on having a certain wage after retirement, want to be flexible about how much you contribute, and want the freedom to control your money, a private pension from a provider like mynestegg is the right choice. 

Who needs a pension?

Everyone. 

It’s a fact of life that unless you want to work into your 70s, 80s or even later, you need a pension.

If you want to have more than the small state pension you’ll be entitled to, you need a private pension.

If you want to stop worrying about your retirement and start planning how you’ll enjoy it, then that’s right.

You’ll need a private pension.

Your question shouldn’t be “do I need a pension.” It should always be “where should I get my pension from.”

Isn’t my workplace pension enough? And the state pension?

If you want to know how much your existing workplace and state pension will leave you with each year, use the below examples for some guidance.

It might not be as much as you’d think. 

Imagine you’re 58 now.

Here’s what your monthly pension could look like by the time you’re 67 depending on how much you have saved already:

Take a look at how much you’d earn if you opened a new pension with mynestegg with our new pension calculator.

Consolidating your workplace pension (or pensions) and adding your own private contributions will soon add up. Instead of having a few hundred pounds a month, you could enjoy a comfortable income, giving you the freedom to travel, relax, and enjoy your retirement.

Where does the money go in a mynestegg pension?

Savings with mynestegg are invested into some of the world’s biggest, most successful brands. We work via trusted institutions who manage over ten trillion pounds for customers just like you. 

And it won’t go to the tax man either. You won’t need to pay any tax on the growth of your investment.

How risky is saving in a private pension?

All financial investments have some level of risk. Nobody’s got a crystal ball to see how any business will perform, which is why it’s important to spread the risk. We don’t put all your eggs in one basket, spreading your portfolio across multiple funds. You can view it as a comfortable middle ground when it comes to risk. A pension isn’t the low-risk, low-reward strategy of using a standard savings account, or the high risk process of investing in stocks and shares yourself. Instead, it’s a relatively safe way to invest for the long term. 

Our approach to pensions is backed by the Financial Services Compensation Scheme (FSCS) to give you a little extra piece of mind too. 

You’ll also benefit from a tax rebate by contributing to your private pension. You can claim for tax relief on private pension contributions worth up to £60k per year - or 100% of your annual earnings (whichever is greater, and subject to a few other rules) - making a pension one of the most tax efficient ways to prepare for your future.

When can I take my money out of my pension?

As we explained above, you aren’t eligible for a state pension until the age of 66, rising to 67. Your workplace pension will have its own rules, which your employer will have agreed to on your behalf.

But a private pension with mynestegg gives you more freedom and more flexibility.

You can access as much or as little of your pension as you’d like from the age of 55 - rising to 57 from 2028. That means if you start saving earlier, you can retire much earlier too. 

What can I use my pension for?

Anything. Everything. Whether it’s paying off the remainder of your mortgage, enjoying a comfortable lifestyle, travelling the world or supporting your family and loved ones, your pension is your money. Once you’ve retired, you call the shots.

Whatever you’re saving for, with mynestegg you’ll be able to see your pension grow from the palm of your hand, thanks to our easy to use app. And with our unique calculator, you can start planning that retirement and know exactly how much you’ll need to save. 

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That’s the basics covered, but there’s lots more to learn about pensions so you can make the most of your savings and secure your tomorrow, today: