The options you have for building up a pension

There are a huge range of pensions for every salary and investment type, so much so that it can be overwhelming for people deciding how to start saving.

Final salary pensions are often called benefit schemes and are usually supplied by employers. It involves receiving a percentage of your final salary before retirement or upon leaving their employment. The percentage will depend on how long you have worked for the company, so obviously the longer you have worked for someone the better that percentage will be.

Private pensions are your own savings and consist of standard pensions, stakeholder pensions, self-invested personal pensions (SIPPs) and state pensions. Standard pensions are the most straightforward of the three main pension plans (excluding state pensions); stakeholder pensions are similar to standard pensions, but offer more choice in investment; and SIPPs allow much more flexibility and are suited to high-earners.

With final salary, standard, stakeholder pensions and SIPPs, both you and your employer can make payments. With standard, stakeholder and SIPPs, you have to invest the cash, which is not the case with a final salary pension.

State pensions are different, because your employer cannot invest and nor do you have to invest the cash. Your pension is built up by paying National Insurance (which is compulsory through your paycheque, in the same way you pay tax). However, although state pensions are certainly the easiest way to save (you don’t even have to be aware of the fact that you are saving due to the indirect nature of the state pension) they are also the least effective way of saving for retirement, with a maximum weekly allowance of £107.45.

The new workplace pensions are also great ways to save, as you will effectively get a pay rise with you and your employer paying into a pension scheme together.