MONEY: Your pension explained

Building a pension can help you have a more stable future, and you can get money towards your pension even if you’re out of work for long periods of time.

Pensions are a tax-efficient way of saving money for when you are no longer working and come in three main forms: the state pension paid by the government; workplace pensions arranged by your employer; personal or private pensions that you set up yourself. You can save into different pensions at the same time as long as you stay within the tax-free limit each year, but it is unlikely you will reach this unless you are contributing your full salary.

You can save into different pensions at the same time as long as you stay within the tax-free limit each year

When you reach 55-years-old, you can take money from your pension as a lump-sum, to use as income, or a combination of both. Otherwise, you will receive your pension when you reach retirement age.

If you are unwell

If you have to take an extended period off work due to illness and you are receiving Statutory Sick Pay (SSP), this will still mean contributions are being made to your workplace pension. Automatic enrolment legislation classifies SSP as qualifying earnings so during sick leave pension contributions will be paid by both you and your employer, but the amount will reflect your income at the time.

In this situation, you might not be able to afford to continue making pension contributions so it’s important to know about your other options.

If you can no longer work

While you can withdraw money from your pension once you turn 55, you might be able to start receiving an income from your pension earlier if you are very ill or no longer able to work. This applies regardless of your age, but you have to speak with your pension provider directly to see if it is possible.

These rules don’t apply to your state pension, but if you are in receipt of any state benefits, check that you’re also receiving National Insurance Contributions as these will count towards it.

Understanding Pension Credit

Pension Credit can give you additional help with your living costs if you’re currently over state pension age and on a low income. Carers, disabled people and people responsible for a child or young person may qualify for this extra money.

These payments are separate from your state pension and you can still receive them if you have savings or own your home. If you collect Pension Credit, you could be eligible for further support like Housing Benefit, a council tax reduction or a free TV licence, find out more at

Money Helper (, 0800 011 3797) and The Pension Service (0800 731 7898, prefixed by 18001 if using Relay UK) can provide further information and advice on pensions.

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