As part of Pensions Awareness Week we asked some of our Independent Financial Advisers to answer some of the questions they are asked most often by their clients.
I have a workplace pension scheme, so why do I need a personal pension scheme as well?
When you retire you should receive your workplace pension and your state pension which is currently £175.20 a week (or £9,110.40 a year), however many people may consider these will be insufficient to meet their needs. As a result, many choose to make additional pension contributions. These can be simple deductions from salary in which case it may be easiest to add to your existing workplace pension. Typically, personal pensions are used where lump sums are to be contributed or where a self-employed or high net worth individual is contributing to a pension.
Can I top up my workplace pension?
Yes, you can top up your workplace pension through deductions from your salary. Your employer is not obliged to match any payments you make through these schemes (your HR or Employee Benefits department can let you know if they will do so). Any contributions you do make will benefit from basic rate tax relief in the pension, and higher/additional tax relief (if paid) via a tax return. If you are looking at lump sum contributions, you may wish to consider an alternative plan and you should speak to an independent financial adviser to help understand what the best plan is for you.
Is there a limit to what I can pay in?
Yes, the limit (or Annual Allowance) is set at £40,000 or your relevant earnings (salary for most people) whichever is lowest each tax year. Your allowance may also be less if your income is in excess of £200,000 per annum. These limits apply to all contributions made and not per pension. If you have already started accessing your pensions flexibly, then the allowance is currently only £4,000 per annum. If you exceed the Annual Allowance you won’t receive tax relief on your pension contributions, and you will have to pay an Annual Allowance charge of any tax relief received. It may be possible to use previous years allowances so you should speak to an Independent Financial Adviser to understand the maximum contribution you can make if you are planning to contribute in excess of your Annual Allowance.
How do I know how much to save?
The simplest advice, and one which most pension experts will give, is that you should save as much as possible into your pension, as early as possible. As a guide, moneysavingexpert.com suggests that you should: “Take the age you start your pension and halve it. Then put this % of your pre-tax salary into your pension each year until you retire.”
Can I have more than one pension?
Most people will have more than one job in their career, so will probably have more than one pension. You can have multiple pensions and most people do. You may choose to consolidate them into one pension pot, which may be easier to manage. You should be aware that doing so may invalidate some valuable features such as guaranteed annuity rates and additional tax-free cash sums, and in addition there may be exit fees to pay. Many people look to consolidate their pensions in the lead up to retirement but this can be looked at much earlier. An Independent Financial Adviser can assist with understanding the pensions you have built up and whether consolidation is appropriate.
How do I find a lost pension?
The government has a Pension Tracing Service which is free and can help you trace a pension you’ve lost track of, even if you don’t know the details of the pension provider. You should collect as much information beforehand as you can, including:
- the name of your previous employer
- any previous names of your employer
- whether it changed address
- when you belonged to their pension scheme
The Pension Tracing Service will only tell you the contact details of the pension’s administrator. You will then need to contact that administrator to find out whether you have a pension, what value it is and to ask for it to be paid out. https://www.gov.uk/find-pension-contact-details
0800 731 0193.
What happens to my pension when I die?
When you die, your pensions may provide benefits to your dependants. Most personal or workplace pensions allow you to leave your pension to whoever you choose through a Nomination of Beneficiary or Expression of Wish form. Most pensions sit outside of your estate and do not have to pass on as per your will. For these types of pensions, death benefits will be tax free if death occurs before age 75 and taxed as income to the beneficiary if death occurs post 75. Defined benefit pensions are likely to provide different death benefits to this and each scheme may be different. You should speak to your financial adviser or pension provider to find out exactly what the death benefits associated to your pensions are.
Is there a limit to the total value of my pension?
The maximum amount, or Lifetime Allowance, that you can hold within all your pension schemes is currently £1,073,100 (it is linked to the Consumer Price Index). This is the total value of your pensions, any value above this may face a Lifetime Allowance charge. If you exceed this sum, then any amount above this can be subject to a tax charge of 25% if the remainder is paid as income, or 55% if paid as a lump sum. The value of your Lifetime Allowance does not include your state pension but would include any defined benefit pensions. If you are approaching the Lifetime Allowance with your pensions you should speak to an Independent Financial Adviser.
When can I withdraw money out of my pension?
You can usually start taking out money from your pension scheme from the age of 55. This is due to increase to 57 or 10 years prior to state pension age. The only exception to this is for ill health. The earlier you access your pensions the longer the ‘pot’ has to provide for you in retirement. With a defined benefit pension this will mean starting on a lower income. An Independent Financial Adviser can assist with understanding how your pensions can provide an income for you in retirement and the best way to access your pensions.
I have seen TV adverts about pension scams, how do I know who to trust?
There are a number of ways to spot scammers which include
- Returns on investments which are ‘guaranteed’ to be higher than anywhere else
- Using claims that they are connected to legitimate organisations such as AgeUK, or the Pension Service
- Getting a text, email or phone call from a person or business you don’t know and weren’t expecting
- Special deals or bargains for time- dependant offer of things like ‘free pension reviews’, ‘government initiatives’ or ‘one-time investment offers’
- Using a PO box number rather than a read address, and no other contact details
- Badly worded communications with grammar and spelling mistakes
Trust your instincts. If something or someone doesn’t look or sound legitimate, then walk away. You should always use an adviser who works for an FCA-registered firm. Check their details (don’t take them at face value) at www.register.fca.org.uk
. If you don’t use an FCA-registered firm and something does go wrong, you are very unlikely to get your money back.
Having an appropriate pension can make a big difference to your life after you retire, but it is important that the advice you get is from an independent, regulated, and trusted source. Our financial advisers will always look at the whole of the pensions market and can work with our Tax specialists to make sure that your whatever plan you choose is the right financial solution for you.
Our teams are able to discuss this with you virtually, over the phone or in person.