What’s a pension?
What’s the first thing that comes to mind when you think of the word ‘pension’? Do you feel hopeful and excited? Or does it fill you with dread, confusion, or mistrust? Our explainer will help you understand what a pension is and why it’s important to get yours sorted.
What are pensions for?
The word ‘pension’ certainly evokes a lot of different feelings in people. But the word itself actually originates from the Latin word ‘pensio’ which means ‘payment’.
They’re a type of regular payment from the government or a financial institution to people who are no longer working.
Pensions go back a really long time! One of the first pension schemes in history was established by Roman emperor Augustus Caesar in 13 BC. He created a special fund to pay retired Roman soldiers after their years of military service. The amount was paid in a lump sum and was around 23 times a soldier’s annual salary.
Why do I need a pension?
Your pension is the money you’ll live on when you retire. Since you won’t be working for a salary, you’ll need to get that money from somewhere else. It might be helpful to think of your pension as money you’re putting away now for ‘future you’. The amount you’ll need to save will depend on the kind of lifestyle you want in the future.
When you put money into your pension rather than a savings account, you get “free money” from the government. This is because some of your money which would have been paid as taxes is claimed back for you. And this means that some of your money that would have gone to the government as taxes goes into your pension pot instead. So you get to keep more money! What’s not to love?