Pensions are plans that offer steady income to a person after they have retired. Pensions are essentially a deferred compensation that offers tax advantages to the employer and employee. Pensions can be in the form of an annuity, or a cash balance that is drawn from after retirement. Whichever the case may be pension plans allow employees to prepare for their retirement. In the United Kingdom, pensions come in many forms.

Basic state pensions are offered for most people and the amount received depends on the amount of contributions that person has made to the National Insurance fund. Factors such as being married also contribute to the amount of money a person will get each week from the basic state pension. The State Second Pension is offered to employees that are not self employed and was introduced by the Child Support Pensions and Social Security Act of 2000. It offers three distinct payout rates determined by the amount of contributions made.

Personal pensions were introduced in 1988 for people that are not a part of a company pension. This is a great tool for people who are self employed or work for a company without a good pension plan. Since 2001 members of a company pension scheme can also take out an additional personal pension. Occupational pensions are set up by employers for employees. Most occupational pensions usually offer an eightieth of the final remuneration for each year of work plus a lump sum of up to a hundred and fifty percent of the final remuneration.

Employers have to offer employees the chance to invest additional contributions to their pension. These are called additional voluntary contributions. An employee can voluntarily invest up to a hundred percent of their total remuneration. Free standing additional voluntary contributions are a variation of additional voluntary contributions. The difference is that free standing additional voluntary contributes are made to a pension scheme run by a third party pension provider rather than the employer. This allows for a wider range of investment choices.

Self invested personal pension schemes allow individuals to have more flexibility to how they invest and use their pension funds. Since 2006 individuals can purchase an annuity as well as using a pension drawdown. Using a self invested personal pension scheme you can transfer a balance to another pension scheme, make or receive lump payments, and an employer can even pay into the plan or match your payments. Since 2006 you can also invest in as many pension plans as you'd like you have a wide range of investment options available including shares and property.

Preparing for retirement is a very good idea and the modern pension laws in the United Kingdom give you many options for paying in and drawing funds. The manner in which a pension pays out is very important. Flexibility is key because it is impossible to predict the future and it is important to have flexible access to your money. You do not want to have a large pension but not the ability to use the money you need during a particularly hard month or year.

BlueWaterArticles.com: - A Guide to UK Pension Schemes

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