Make sure you know the type of scheme you have
These days, it’s not uncommon for people to spend nearly as long in retirement as they did in the workplace.  Most people cherish the time when they can choose exactly what they do each day. For some, it may mean the opportunity to spend more time with grandchildren and friends; others may long to improve their golf handicap.

Whatever your plans for retirement, you’ll want to make the most of your retirement savings.

That means making the right choices approaching retirement.

Exactly what choices you need to make will depend on the pension scheme you have.

Pension schemes are usually classified as either ‘defined benefit’ or ‘defined contribution’:

• Defined benefit.  Defined benefit schemes are also colloquially called ‘final salary’ pension schemes.  This is because they promise to provide you with a proportion of the salary you were earning close to the point of retirement.  There are other types of defined benefit scheme, but most people will be in a final salary scheme.

• Defined contribution.  This is a ‘catch-all’ expression for most other types of scheme: SIPPs, personal pensions, stakeholder pensions and group money purchase schemes. In these schemes, contributions are paid into the scheme by you and/or your employer (and in certain circumstances the government).  At the point of retirement, you should have a pot of money that you can use to provide an income for the rest of your life. Often this means buying an annuity (though there are other options).   

Whatever type of pension arrangement you have, the first decision you need to make is whether or not to take part of your benefits as a tax free cash sum (assuming you haven’t taken this before you retire).

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