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What is a pension and do I need one?
What is a pension and do I need one?

Learn the basics of what a pension is and find out if they're right for you.

Ellie Lister avatar
Written by Ellie Lister
Updated over a week ago

What’s a pension?

It's a type of financial product that has generous tax benefits because the government wants to encourage people to have one, so they reward you with 25% tax relief on the money you save. There are a few different types of pension, as listed in our glossary. Penfold operates a type of defined contribution pension called a SIPP, which gives you the most control over where your money is invested.

Do I need one? 

Could you live on £8,767 a year? That’s currently the maximum amount the government gives you each year under the state pension, after reaching retirement age (currently between 66 and 68). 

Most people think that’s not enough and want another source of income after they stop work. The most common and tax-efficient way to provide this income this is usually through saving into a pension whilst you are working. After you turn 55, you can convert whatever you have put aside in a pension during your working years, into an annual income for the rest of your life.

What if I’m self-employed?

The big difference is that if you’re self-employed, you’re left on your own to plan your pension, and you won’t get contributions from an employer in the way that traditional employees do. 

You are still entitled to tax relief (government contributions) on your pension, and as long as you pay National Insurance for long enough, you’ll still be entitled to the state pension when you retire. If you’re self-employed and want a pension, you’ll need to set up a personal or private pension. The good news is – you are exactly who Penfold was built for. 

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