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.
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 £155.65 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.
Our 2015 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 £23,469 per year.
For more information on ‘How much you should save for retirement?’ watch our Pension Basics in 30 seconds film.
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 (annual allowance).
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.
For more information on ‘What is tax relief?’ watch our Pension Basics in 30 seconds film.
Automatic enrolment is a Government scheme that was introduced in 2012 which means every employer in the UK must automatically enrol all eligible employees into a workplace pensions scheme by 2018. Employers will have to make minimum contributions into the scheme and may require their eligible employees to contribute too. Automatic enrolment 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.
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. 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 but there may be drawbacks to this which you might not have considered. For example, you need to consider how much you will pay in total charges under both schemes before making a decision; also your existing policy could provide valuable guarantees that you would lose on transfer.
If you have different plans 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.
The Government website and our Pension Basics in 30 seconds film below have 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.
Annual allowance is the maximum amount you can save into a pension each year with tax benefits. It is based on your earnings for the year and is capped at £40,000, as of 6 April 2016. 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 pay-out from a pension scheme – whether as lump sums or as retirement income – that can be received before extra tax-charges are triggered. It is currently £1m (tax year 2016-17) having been reduced from £1.25m on 6 April 2016.
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.
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 visits our 5 steps to retirement webpage or watch our Pension Basics in 30 seconds film below.
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.