Pensions
Who needs a pension?
Everyone should have a Personal Pension or a Workplace Pension. Along with the state pension from the Government of £9,627.80 a year (2022/23) your workplace and/or personal pension provides you with additional income for life to keep you in a reasonably comfortable retirement.
Personal pension and Workplace Pension
Under the Government Auto-Enrolment pension scheme, employers are required to provide a Workplace Pension scheme for their employees and pay employer contributions, effectively adding money to your pension pot.
This means that it is generally a good idea to take up your Workplace Pension.
You may decide to save into both a Personal Pension and a Workplace Pension to build up a larger pension fund for your retirement.
What if I do nothing?
If you have no other forms of savings or pension you will just get the basic state pension to live off. Can you live off £9,627.80 per year for the rest of your life?
Do I have sufficient pension for my retirement?
Many people move jobs many times during their working life, or may have periods of not working. Review and assessment of your pension plans will identify shortfalls which could be filled, and any excess charges you may be paying.
For Pension Advice – Contact Jan
Starting new and consolidating pensions is best done with a Financial Advisor to guide you to appropriate pension products for your situation.
You should always seek expert financial advice.
Read on to learn more about Pensions
What is a Personal Pension
A personal pension is a savings product that you can set up yourself to save money for your retirement.
The value when you retire will depend on how much you have paid into your pension and how your investments have performed.
At present you can retire as long as you are at least 55 years old (57 from 2028)
Personal Pension Investment Funds
When you start a pension you will be given a choice of pension funds to invest in. These are managed by professional fund managers who will invest your pension savings until your retirement age.
Once you have opened your pension plan you can start making regular monthly contributions at the same time your pension provider will claim tax relief of 25% from the government on your behalf and add this to your monthly contributions.
At Retirement
On retirement, a personal pension is far more flexible than the traditional annuity. You leave the fund in place, and take an “income drawdown” as your pension.
Tax Relief on Personal Pensions
When you pay into a personal pension your pension provider will claim 25% Tax relief on your behalf from the government.
Example
If you pay £100 into your pension you get an extra £25 as tax relief so a total of £125.00 is invested into your pension.
If you are a higher rate tax payer you can claim an additional 25% tax top up via your tax return or 31% if you are a top rate tax payer.
For tax year 2022/23 you get tax relief up to 100% of your salary or £40,000 depending on which is lower.
What is the State Pension ?
The state pension is a regular payment you get from the Government once you reach State Pension Age. To qualify you must have paid NI (National Insurance) contributions during your working life.
How much is the state pension ?
The full state pension is currently (2022/23) worth £185.15 per week = £9,627.80 per year. It is adjusted each year on the “triple lock guarantee”; each April it increases by the greater of September’s price inflation or earnings growth or 2.5%.
Not everybody will be entitled to the maximum state pension. You need 10 years of NI contributions to get the bare minimum. To get the full state pension you will need 35 Qualifying years.
You can get further information on how much you will get at your state pension age by going onto the gov.uk state pension calculator and check your NI Contribution record.
Married Couple – How much state pension ?
If you both have your full 35 years NI contributions qualifying service years then you could receive a maximum of £370.34 per week or £19,255.60 per year BETWEEN THE TWO OF YOU (2022/23).
Rules
The rules surrounding the State Pension are likely to continue to change as governments introduce new legislation so you need to keep up to date with what is happening so as to keep a track on your state pension entitlement at your state pension age
When can I claim my state pension ?
Currently both men and woman can claim their state pension from age 66 However this is set to increase to 67 by 2028 before increasing again to 68 between 3037 and 3039.
At the moment you will not receive your state pension automatically and you will need to claim it when you meet the required age. You will receive a letter 4 months before you reach State Pension Age with instructions on how to claim.
Can I live off the State Pension ?
If you are eligible for the full state pension you will have an income of £9,627.80 per year.
Research by the Pensions & Life Savings Association indicated that just over £20,000 per year is needed for a Moderate retirement for an individual in order to allow some flexibility of financial security on top of a few luxuries.
In order to achieve this income of £20,00 per year in retirement you will need to have some additional provisions in place on top of your state pension.
What is a workplace Pension ?
A workplace pension is a way of saving for your retirement arranged by your Employer. Usually both you and your employer pay into it under Auto Enrolment Rules.
Contributions are taken directly from your wages and paid into your pension. Usually your employer adds money to your pension and contributions from the Government will be added in the form of Tax Relief.
How Workplace Pensions Work ?
Most modern workplace pension are defined contribution pensions. This means that the amount you have in your pension plan on retirement depends on how much both you and your employer have contributed into it and how your investments have performed over the time you have been paying into it.
Employers now have to automatically enrol most of their employees into a workplace pension scheme and the employers are obliged to make a certain level of contribution.
The minimum employee contribution is currently set at 5% of your Qualifying Earnings while the minimum amount your employer has to pay is 3%.
What age can I take my workplace pension ?
When you reach 55 (57 from 2028) you can take your pension benefits.
When you want to take your pension you will have to contact your pension provider who will then send you out a Retirement Pack outlining all your options.
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