A pension is a way of saving to help support you in retirement. You normally get tax-relief on any contributions to a pension, and if you are a member of a workplace pension scheme your employer will normally pay in too. Find out more on the types of pension available to you.
For more information on ‘What is a pension?’ watch our Pension Basics in 30 seconds film.
What is a pension?
The new State Pension is a regular payment from the Government that you can claim if you reach State Pension age on or after 6 April 2016. The full new State Pension is £159.55 per week and you’ll usually require 10 years of National Insurance contributions to qualify. For more information visit www.gov.uk/new-state-pension. If you retired before 6 April 2016, you will not qualify for the new state pension and will remain in the basic state pension, for more information visit www.gov.uk/state-pension.
For more information watch our Pension Basics in 30 seconds film.
What is the State Pension?
Our 2016 Retirement Report recommends that you should aim to save at least 12% of your gross income, if you can afford it. This doesn’t have to just be your own contributions to a pension scheme, the 12% can include anything your employer pays into your pension scheme as well. You may also receive tax relief on contributions that you pay into your pension scheme up to certain limits, although please remember this will depend on your individual circumstances and that these along with tax rules may change.
Our Retirement Report also found that people in the UK are saving on average 12% of their gross income towards retirement and that on the whole people feel the average gross income they require to be comfortable in retirement is £23,990 per year.
For more information on ‘How much you should save for retirement?’ watch our Pension Basics in 30 seconds film.
How much should I be saving for retirement?
A pension is one of the best ways to save for retirement. It’s the tax benefits that make pensions such a big draw. For UK basic rate taxpayers*, currently every 80p you pay in is topped up to £1 by the taxman, and you may be able to reclaim further tax relief if you’re a higher or additional rate tax payer, though there are limits on the amount you can contribute that qualifies for tax relief (This is your annual allowance – Currently £40,000 for Tax Year 2017/18).
Most people’s employers will also pay into their pension. With some pension schemes your contributions will be deducted from your pay before income tax is calculated meaning that you receive tax relief at your highest rate automatically.
If you take a lump sum from your pension, 25% of it will be tax-free with the balance subject to tax. If you choose to take a guaranteed income, you can normally take up to 25% of the value of your pension pot as a tax free lump sum. The income will be subject to tax which will depend on your individual circumstances and these along with tax rules may change. *If you are a Scottish taxpayer the tax relief you will be entitled to will be at the Scottish rate of Income Tax, which may be different from the rest of the UK.
For more information on ‘What is tax relief?’ watch our Pension Basics in 30 seconds film.
What is tax relief?
Automatic enrolment is a Government scheme that was introduced in 2012 which requires employers to automatically enrol all eligible employees into a workplace pension scheme by a specific date (their staging date). By 2018, this will include all employers in the UK. Employers will have to make minimum contributions into the scheme and may require their eligible employees to contribute too. Automatic enrolment usually applies to anyone who is:
Though employees who do not meet these criteria may apply to join the scheme.
Even if you are in these groups, you may not see any changes if you’re already in a qualifying workplace pension scheme as this should carry on as normal. For more information visit The Pensions Advisory Service. However if your employer doesn’t make a contribution to your pension now they will have to in the near future.
Automatic enrolment is being phased in, starting with the largest UK employers. So if you’re eligible and haven’t yet enrolled into your workplace scheme, you should be by October 2018. Your employer can help you identify when you will be enrolled, if you haven’t been already.
For more information on ‘What is automatic enrolment?’ watch our Pension Basics in 30 seconds film.
What is automatic enrolment?
Your pension scheme should provide information on your options. The most likely options you will have are to leave it where it is or transfer it to the new scheme offered by your new employer, although it’s worth checking if you’ll lose any benefits or guarantees when transferring. You’ll also be able to contribute to it on your own, even when you’ve left the company. If you have a reasonable amount in the pension it’s a good idea to get independent financial advice on what’s best.
You can combine multiple pension pots into one by transferring your pension and there are advantages and disadvantages to this depending on your circumstances. For example, you could pay less in charges if you transfer a pension pot from one scheme to another with lower charges. You’ll also be able to manage things more easily if all your pensions are in one place. However, your existing policy could provide valuable guarantees that you would lose on transfer.
If you have more than one plan it’s probably best to see a financial adviser who’ll be able to help you decide whether transferring your plans is a good idea, and make arrangements if it is. If you feel you are ready to combine your pensions visit our website for more information.
The Government website also has further information on transferring your pension.
If you've lost track of your pension, you can try the Government pension tracing service. This is a free service and they will be able to provide you with the address of your scheme provider, if they have a record of them.
Alternatively you can contact the Pension Tracing Service by phone or by post.
Pension Tracing Service
Telephone: 0345 6002 537
From outside the UK: +44 (0)191 215 4491
Textphone: 0345 3000 169
Monday to Friday, 8am to 6pm
Find out about call charges
The Pension Service 9
Mail Handling Site A
For more on tracking down a lost pension watch our Pension Basics in 30 seconds film.
How do I find a lost pension?
Annual Allowance is the limit the Government places on pension savings you can make each year that benefit from tax relief. It is currently set at £40,000 for Tax Year 2017/18. And any pension savings that exceed the annual allowance trigger a tax charge. If you don’t use all the allowance in one tax year, you can carry it forward for up to three tax years. You can use HMRC’s annual allowance calculators to work out if you can top up your annual allowance. Please note that tax rules may change.
The Lifetime Allowance is the maximum you can take from a pension scheme – whether as lump sums or as retirement income – before extra tax-charges are triggered. It is currently £1m (Tax Year 2017–18) having been reduced from £1.25m on 6 April 2016.
If you exceed this amount you will usually have to pay tax. The tax charge depends on how the money is paid to you. (55% if you receive it in a lump sum or 25% if you receive it as income.) Your pension provider will be able to tell you how much you owe and will deduct the tax before paying your pension.
For more information on your Lifetime Allowance watch our Pension Basics in 30 seconds film.
What is my Lifetime Allowance?
You can normally start taking pension benefits from age 55. In certain circumstances, you may be able to start earlier, for example if you’re in ill health.
Access to your State Pension varies depending on when you were born. You can find out when you can access it on the Government website.
There are 4 main pension options once you reach 55 years old. You may already have a good idea of which option suits you best but it’s really worth comparing the features and benefits of each options. Your options include:
For further information on your options visit our pension options webpage or watch our Pension Basics in 30 seconds film below.
What are my pension options?
Please note that these Q&A's do not constitute advice regarding your pension or finances. If you are in any doubt about the action you should take, you are recommended to seek your own personal financial, investment and taxation advice from a Financial Adviser authorised under the Financial Services and Markets Act 2000 if you are in the United Kingdom or, if not, from another appropriately authorised Financial Adviser.