Pensions are extremely complex products designed with one very simple aim – providing the money via a pension fund to fund your retirement once your working life is over.

The Government has got itself into a real lather about pensions, recognising that there will soon be too many retired people depending on a smaller working population to fund their pensions. Various initiatives, like the Stakeholder pension, have failed to make much of an impact on the situation, and people are very confused about the choices they have.

If you want to do something positive about your retirement finances, rather than just relying on the State pension (in which case you probably won’t be reading this and you have a miserable future of baked beans on toast ahead of you), you should consult a professional and get pension advice.

Rather than filling up endless pages of this site with all the technical details of pensions (and, apologies to all those actuaries, but they are utterly boring) it would be better to get what’s relevant to you straight from the horse’s mouth.

Basically there are three types of pension:

State pension
Personal pension
Occupational pension

The State pension
This is available to anyone who has paid enough National Insurance contributions for a number of years and is currently paid to women over 60 and men over 65.

The Second State Pension (S2P) gives a more generous additional State pension for low and moderate earners.

Personal pensions

These are designed for people without a company pension. Your contributions attract tax relief at your highest rate of tax. You can take out 25%, tax-free, of your pot on retirement and use the rest to buy an annuity, which is an investment product designed to pay you a pension.

Occupational pensions

Most big companies and statutory bodies like the civil service and local authorities run their own pension scheme, where money is deducted from your salary and put into a pension.

There are two basic types of occupational pension scheme – final salary and money purchase. The former is better as you are guaranteed a proportion of your salary level at retirement. Unfortunately, it is becoming rarer as employers realise it is much cheaper for them to run money purchase schemes – where your contributions are gambled on the stock market as they are with a personal pension. You definitely need pension advice with this kind of product.

With an occupational scheme you can make Additional Voluntary Contributions (AVCs), which top up your contributions to the maximum level allowed by the taxman. These are paid into the same pension company used by the employer. Again, pension advice is required if you decide to do this.

Free-standing Additional Voluntary Contributions (FSAVCs) are paid to a pension company selected by you if you are not impressed with the one used by your employer.