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When and how we can retire has changed. It will probably change again by the time those of us in our thirties retire. But one thing will remain the same. If we want our retirement to be comfortable and offer choices, we will need to have saved some money.

How pensions work
Pensions are still a popular way to save for retirement. There are two main types - a private pension you set up yourself, or a workplace pension which your employer sets up for you. Workplace pensions are good because your employer pays in too.

You pay less tax
With pensions, you save for retirement in a tax efficient way. This means that you don’t pay income tax on money you put into a pension and you don’t pay tax on how much it grows. When you come to take your money, you can take a quarter of it as a tax-free lump sum.

They potentially grow more
When you put your money in a pension, it gets invested. This aims to potentially grow your money more than in a bank account. But there’s also a risk that you can lose money. For example, dips in the stock market can make investments go down. You could get back less than you invested. Over time, the aim is that any potential growth counters the risks. This is why investing is a long-term plan.

How you take money out
If you’ve saved into a workplace or private pension, once you reach 55, you can start taking your money out. You can:

  • Turn it into a regular taxable income (annuity), so you can always be sure of what you’ll get.
  • Take lump sums (25% tax free) and taxable income from your pension pot as and when you need and leave the rest invested.
  • You can take your whole pension pot as a cash sum of which 25% would be tax free but the remaining 75% is taxed along with any other income you may receive.
  • Leave it where it is and continue saving. You don’t have to take your pension as soon as you reach 55.

What you can do today

Scottish Widows are our Pensions experts; they’re also part of the same group as us. You can access the information available to help you in making the best decisions for you.

  • Retirement Planning page - access information to help plan your retirement.
  • Handy Tool - if you’re approaching retirement, review your pension options and see how much you might get from them
  • Pensions Transfer - if you have more than one pension pot you could combine them into one plan to make them easier to manage

Other sources of information:
For free and impartial money advice, visit the Money Advice Service.
You might want to talk to a financial adviser. Find one near you.
The Government are offering free guidance on your options online, by phone or face to face from Pension Wise.