A pension provides income to live on in retirement. There are state benefit schemes offering limited financial support for your old age, and a number of other private schemes enabling you to build a larger fund for the future. To avoid a paltry income in retirement it is in everybody's best interest to save more for it.
State benefits are included in the State 2nd Pension, replacing the basic state pension (SERPS) from 2002. There are a number of other types of pension scheme including occupational pensions, personal pensions and stakeholder pensions.
Where the pension is an occupational scheme. it may be possible to make additional contributions in the form of AVCs, FSAVCs or stakeholder pension contributions.
Self invested personal pension schemes (SIPPs) allow investments from a wide range of sources including Commercial Property, shares and unit trusts.
You can get a personal pension whether you're employed, self-employed or out of work as long as you are:
If you want to retire on more than the state pension but don't have a company pension at work, a personal pension is a great option.
Firstly you can't get your hands on your pension until you're at least 55 years old, which is good because it gives you time to build up a bigger pension, without the temptation to dip into your savings.
When you take your benefits you can normally choose to take up to a quarter of your benefits as a tax-free cash sum.
You may want to use the rest of the money you've saved in your pension to buy an annuity. An annuity is an investment that guarantees to pay you a regular income for the rest of your life, no matter how long you live.
Please remember, the amount of income provided by your pension will depend on a number of factors, including investment returns and annuity rates when you retire.
A little now makes a big difference later- the golden rule is to invest the most you can afford, and the earlier you start the better. Even a modest amount saved now can make a big difference later.
You get tax relief on everything you put away, up to 100% of your annual earnings (and also subject to an upper annual allowance of £40,000*).
Even if you're a non tax payer you can still pay into your personal pension, and get tax relief on up to £2,880 of contributions each year.
*Please note, you don't get tax relief on payments above £40,000, in fact you will be taxed on them. If you have unused allowance from previous tax years, you may be able to pay in more than this. To find out more, please see Questions & Answers. Also remember, this information is based on our current understanding of taxation law and HM Revenue & Customs practice in the UK. The amount of tax relief you receive depends on your personal circumstances and may change.
You can pay in anything from £1 upwards. You get tax relief on everything you put away, up to 100% of your annual earnings (subject to an upper annual allowance of £40,000). If you are able to save more than £40,000 a year, you don't get tax relief on payments above that, in fact you will be taxed on them. If you have unused annual allowance from previous tax years, you may be able to pay in more than this. Please see below.
Yes, but any contributions above this will normally be taxed.
You may be able to avoid this by carrying forward any unused annual allowance from previous tax years. There are some rules around this, you can only go back three years, you must have been a registered member of the scheme in the tax year you are carrying forward from and you can only carry forward up to the £40,000 limit in each tax year.
Don't forget this includes any contributions from an employer and increases in value of any other pension savings you may have.
If you'd like to find out more please seek advice from a tax specialist or financial adviser before investing - to ensure you don't incur tax charges you weren't expecting.
Yes, their payments would form part of your total contribution limits.
If you'd like your employer to contribute, just let us know and we'll send you a form making it easy for them to do.
Yes, you are allowed to save in as many pensions as you like. There used to be rules concerning company directors and occupational schemes and salary limits, but these have now been removed.
If you already have a pension which you could make further contributions to, you should speak to an IFA.
Yes, you can transfer other pensions into a new pension, however, you would need to make sure it was the right thing for you to do. If you would like more information please contact us.
Yes, you can. But if you haven't started a pension yet and are hoping to retire within five years time, we strongly recommend you seek independent financial advice, so you can decide on the best options available to you at this time.
Whether you are employed, self-employed or not employed, we claim basic rate tax relief for you and invest it in your pension.
If you pay income tax at the higher rate (or additional rate that applies for those with an annual income above £150,000) you can claim any extra tax relief you are due from the HMRC in your annual tax return.
The first thing is to find out if your new employer offers a company pension, and whether they contribute to it. If so, you should join, so you don't miss out on any payments they're offering. You can also keep your personal pension, and keep paying into it if you wish.
If you become self-employed or your new employer doesn't offer a pension scheme, it's a good idea to keep paying into your personal pension so your retirement savings stay on track.
Whatever you choose to do, please let us know if you've changed jobs.
If you're off work but are still being paid (e.g. paid maternity leave or sick leave), you can continue to pay into your pension and you'll still receive tax relief on your payments (on up to 100% of your annual earnings and also subject to an upper annual allowance of £40,000). If your employer is paying into your pension, you'll need to check with them whether they'll continue to contribute while you're off work.
If you have time away from paid work, remember you can stop payments into your personal pension if you need to. You can start saving again whenever you wish. If you do make payments into your pension you'll still receive tax relief on up to £2,880 of payments each tax year, even if you have no earnings for that tax year. You can pay in more than that if you wish but you won't receive tax relief on the extra amount.
Even if you're not earning you can still pay into your personal pension and receive tax relief on up to £2,880 of payments each tax year. You can pay in more than that if you wish but you won't receive tax relief on the extra amount.
If you can no longer spare the money you can stop your payments into your pension. You can start saving again whenever you're ready.
They will be paid to the beneficiaries you named on your application. If you need to update your beneficiaries at any time, please contact us.
The earliest you can currently take your private pension is your 55th birthday, but state pensions will vary and you should check with directgov.com as to what age they will be able to claim state pension. You can retire at any age but only draw pensions at specific ages.
You can normally take up to a quarter of your savings as a tax-free cash sum. The rest is may be used to buy you an income in retirement, called an annuity.
Investing in stock market shares is not without its risks. They can rise significantly in value over many years, go into periods of decline, or fall suddenly in value, with no guarantees you will get back the full amount you invest.
The key point to remember is that saving into a pension is a long term investment, and the longer you remain invested in the stock market the better you tend to do.
A pension is a long term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.
A conventional annuity is a contract whereby the insurance company agrees to pay to the investor a guaranteed income either for a specific period or for the rest of his or her life in return for a capital sum. With a guaranteed annuity, income is paid for the annuitant's life, but in the event of early death within a guaranteed period, the income is paid for the balance of the guaranteed annuity period to the beneficiaries.
The capital is non-returnable and hence the income paid is relatively high.
Income paid is based on the investor's age, i.e. the mortality factor and interest rates on long term gilts.
Income is paid annually, half yearly, quarterly or monthly.
Annuities can be on one life or two. If they are on two lives the annuity will normally continue until the death of the second life.
If the annuitant dies early, some or all, of the capital is lost. Capital protected annuities return the balance of the capital on early death.
Payments from pension annuities are taxed as income.
Purchased life annuities have a capital and interest element - the capital element is tax free, the interest element is taxable.
Types of annuity include the following - Immediate; guaranteed; compulsory purchase; open market option; deferred; temporary; level; increasing or escalating, short and fixed term.
The purchase price is paid to the insurance company and the income starts immediately and is paid for the lifetime of the annuitant.
Income is paid for the annuitant's life, but in the event of early death within a guaranteed period, say five or 10 years, the income is paid for the balance of the guaranteed period to the beneficiaries.
Also known as open market option annuities, these are bought with the proceeds of pension funds. A fund from an occupational scheme or buy-out (S32) policy will buy a compulsory purchase annuity. A fund from a retirement annuity or personal pension will buy an option market option annuity - an opportunity to move the fund to a provider offering better annuity rates.
A single payment or regular payments are made to an insurance company, but payment of the income does not start for some months or years. This may be suitable for an investor funding for retirement or school fees.
Often used for school fees purposes. The annuity is paid for a fixed period either immediately or after a deferred period, irrespective of the survival of the original annuitant.
A lump sum payment is made to the insurance company, and income starts immediately, but it is only for a limited period - say five years. Payments finish at the end of the fixed period or on earlier death.
The income is level at all times. This of course does not keep pace with inflation.
The annuitant selects a rate of increase and the income will rise each year by the chosen percentage. Some life offices now offer an annuity where the performance is linked to some extent to either a unit linked or with profits fund to give exposure to equities and hopefully increase returns.
The amount of pension income provided by your retirement fund will depend on a number of factors, including age, investment returns and annuity rates when you retire
Independant Financial Advisor
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