Retirement is the stage in life that many people look forward to. The thought of never working again is an intriguing concept. However, it’s important for people to be prepared so they can have the lifestyle they want.

There are lots of ways to financially prepare for retirement. Personal savings, such as an ISA account, give flexibility by allowing customers to take money out before they retire. Some people choose to invest in property under a buy-to-let scheme and either rent out a new property or sell their own home. However, by far the most common method is to pay into a pension scheme.

Although money from a pension is usually only paid out at retirement age, it’s not just for older people as most can pay into one if they are working. Once someone retires they will receive their pension and if they have been paying into one for several years the payout will be greater. So which is the best option?

It isn’t necessary to contribute to a scheme, as a state pension is offered once you hit retirement. The amount that is given will depend on the amount of National Insurance contributions you’ve been paying, though it is generally accepted that state pensions may not be sufficient unless you are planning a simple and thrifty retirement.

Personal pension vs. company pension

If a company has a pension scheme, employees may wish to join it. This means that a certain percentage of wages will be automatically deducted each payday. In most cases, the employer will match the contributions by paying into the scheme with you.

The alternative is to opt for a personal pension plan, where you are the sole contributor to the scheme. While you won’t have help from an employer, it does mean there will be a tax relief where contributions are ‘topped up’ by the taxman.

In either case, once you reach retirement age you can purchase an annuity. This converts what’s in the ‘pension pot’ into a regular income, which is paid out either monthly, quarterly, half-yearly or annually. The amount that is paid is dependent on how much is in the pot. A quick search on the internet will yield plenty of information on the best pension annuity rates around.