Unfunded pensions

These are large public-sector state-run pension schemes for people employed by the NHS, civil service, teachers and military. They provide you with a guaranteed income at retirement and are often referred to as pay-as-you-go schemes. If you’re a member, your retirement benefits are paid from the contributions you and all the members have paid, as well as from the government using money raised from income tax.

Unfunded pension principles

  • As a member you are required to pay into the scheme and the amount you pay varies depending on your salary. Good news though, as the government gives you tax relief on what you put in.
  • If you’re a member or have been in the past, then you’ll have an account within the scheme.
  • Depending on your state sector you could take your pension and tax-free cash at State Pension age or at any age between 55-75 (some older members can still retire at 50). If you decide to retire early, then your pension is reduced.
  • To help protect the value of your retirement income as prices go up your pension will be increased every year in line with the Consumer Prices Index (a measure of the increase in consumer goods and services).

Why are unfunded pensions different?

Unfunded pensions deliver a guaranteed income and tax-free cash amount when you reach retirement age. You have no concerns about investing your money, wondering how it’s doing or what you might get back later in life. In effect, you are building up a pension with a ‘promise to pay’ that the scheme will provide when you retire.

What are the typical benefits?

The amount of retirement benefits you build up over time varies across the different schemes. It often depends on the year you started work with your employer. The common factor across all the schemes is that in exchange for your membership, each year a credit is given to you in the form of a fraction e.g. 1/80th or 1/60th. The annual statement you receive from your scheme will tell you how much retirement income you have built up. In all cases, a tax-free cash amount is also available to you. Helpfully, your statement shows an estimate of the pension you might receive. And, that’s about as certain as you can get in the pensions world!

Share this

Thinking about your pension options?

We can help you make the best possible decisions when it comes to your pensions. We are authorised and regulated by the Financial Conduct Authority.

The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article.
0800 304 7288
Mon-Fri 9am-5pm
Pension Access is a trading name of Harbour Rock Capital Limited which is registered in England & Wales as a Limited Company, No. 10290349. Authorised and regulated by the Financial Conduct Authority, No. 754580. Registered Offices: Affinity House, Beaufort Court, Sir Thomas Longley Road, Rochester, Kent, ME2 4FD. Telephone: 0800 304 7600. Email: pensionaccess@harbourrockcapital.co.uk
© 2023 Pension Access. All right reserved.
What's in your info pack?
Your FREE information pack contains all the information you need to make an informed decision on wheter or not taking tax free cash from your pension is right for you.
Get your Free Info Pack
Complete the form and we'll send you an information pack in the post
Note: We are unable to advise on the state pension or any pension you are already taking an income from.

    Get your free info pack

    Where should we send your info pack?

    Please complete your details below and we'll send your information pack in the next available post

    Find Your address

    Type in your postcode or start typing your address then select from the drop-down list

    Your address

    We'll post your information pack here

    Keeping in touch

    We'll send you updates by email or text message. One of our specialists may call, just in case you have any questions about your pension. We’re big believers in never bombarding people with calls.

    Safety PadlockYour information is safe with us. Our calls are recorded for regulatory, legal and training requirements. Please see our privacy notice for information on our data practices here

    PRIVACY POLICY

    Hands using calculator to calculate home equity amount