Pensions have traditionally been payments made in the form of a guaranteed annuity to a retired or disabled employee, or to a deceased employee's spouse, children, or other beneficiary. A pension created by an employer for the benefit of an employee is commonly referred to as an occupational or employer pension scheme.

There are different types of pensions available today, but the two main types are: 'occupational schemes' - for those employed by a company with five or more staff, and 'personal pension plans' - for the self-employed or those exempt from an occupational scheme.

Occupational schemes can be paid as a 'defined benefit', which means that the retirement fund is calculated using an employee's age, final salary and length of employment, or as money purchase', in which case the amount paid out when the individual retires is only dependent on the size of the fund, regardless of how many years the person in question has actually worked for the company.

In a personal pension plan (PPP), the self-employed and those unable or choosing not, to join an employer's (occupational) pension scheme, can take out a PPP. There are limits on the contributions you can make based on your age and percentage of earnings. Maximum 25 per cent of the fund will be available at your retirement in the form of tax free cash. The balance amount can be used to buy a pension scheme.