From how much to save, sourcing lost pensions to maximizing funds, frequent rule changes and a huge range of schemes have made pensions a minefield. This week, our pensions expert Rod Anderson from GamePlan Wealth joins us to answer some of the most commonly asked questions.
How do I know what kind of pension I have?
Your pension provider should send regular correspondence which details the type of pension you have, or where to find this information. That's why it's important to inform all providers of the correct and most up to date contact details for you - to avoid you losing any policies.
If you think you have lost track of any pensions, you or an adviser on your behalf can contact HMRC to trace these. An adviser can also run through the existing pensions you have, explain how these operate, look at past performance, risk level and how to make your investments work harder for you.
Is my workplace pension enough?
It depends on what “enough” looks like. Before looking at any sort of later life planning it’s worth thinking about how you envisage retirement, as expectations and desires can differ wildly. Some people see themselves golfing each week and dining out, but if you’d like to be driving a new car every three years and travelling first class, it’s likely your workplace pension won’t satisfy those needs.
Many employers will give you the option to increase the amount you pay into your workplace pension; some employers will even agree to match the increased amount for you. In addition, it is important to consider any non-pension assets you have – the likes of property, investments, the amount of State Pension you are entitled to and where appropriate the financial position of your spouse/partner. These are all the things an adviser will discuss and consider to ensure you have an effective strategy to meet your retirement goals.
What happens to my workplace pension if I leave my job?
Your workplace pension will receive contributions from yourself and your employer which stops immediately after you leave your job. The payments you have already made into this pension will remain invested but will fluctuate in line with how those investments perform. When you leave, your pension provider should make contact asking if you’d like to move your old workplace scheme to that of your new employer or a personal scheme.
I have worked in many different companies over the years, how can I track down old pensions?
The Department of Work & Pensions (DWP) launched a Pension Tracing Site which means you can search for pension providers using the name of your previous employers. However, there is no guarantee all employers will have provided you with a pension, as the requirement to auto-enrol staff to a workplace pension was only introduced in 2012. But it is always worth checking.
How big should my pension pot be to live a comfortable life?
Again, this depends on your definition of comfortable and how you intend to spend your time. A recent survey conducted by Which.co.uk suggested that for a two-person household to live a ‘comfortable’ retirement they would require an annual net income of £26,000. This income can be made up of workplace pensions, private pensions, State Pension and any other income sources (Which, 2021).
For most, their largest burden is mortgage repayments but once paid off most people are surprised at how little they need to lead a happy and fulfilled life. Once you have an idea of your financial goals during retirement, you can work back and make a good estimate as to how much you should be saving, and where. An adviser can also help you do this.
I have several pensions, can I put them all in one pot?
Absolutely. Consolidating your pensions into one place is an option. This is often done to allow people to take greater control of their pension funds, potentially save on fees, access a more suitable range of investments, and reduce the admin burden of having pensions with several providers. However, it is important to take advice when considering transferring or consolidating pensions, as some have valuable guarantees attached which would be lost on transfer.
Are pensions taxable?
Current pension regulation allows for 25% to be drawn tax-free, with the remaining 75% being taxed as income in the tax year it is withdrawn. There are certain pensions where the tax will be calculated differently, so it is important to have an expert review your arrangements before withdrawing funds from your pension.
Payments made into a pension will benefit from tax relief at your highest marginal rate of income tax. It’s also important to check if your employer allows pension payments to be made by salary sacrifice, as this can result in significant National Insurance savings too.
How can I maximize my pension fund?
It may seem obvious but increasing the amount you are contributing to your pension means the additional amounts will benefit from tax relief (up to £40,000 per annum). It’s also worth considering investing more into your pension if…
You receive a pay rise from your employer.
A regular expenditure ends (credit cards/student loans etc)
Your employer agrees to increase their contribution should you opt to increase your own as this is free money.
I'm self-employed, where do I begin?
Later Life planning is a key area to consider when making the switch to self-employed along with any other benefits you are potentially losing (health insurance, personal insurances).
Whether you are operating as a sole trader or via a Limited Company, pension contributions are a valuable tax planning tool.
If a sole trader, you will receive income tax relief on any payments made into a registered pension scheme.
If a Limited Company, there is no income tax on company pension contributions and these are not assessed for Corporation Tax.
If unsure on the next step, or if holding off starting a pension as the money is being used elsewhere, speak to a pensions expert who can gather an understanding of your circumstances and advise accordingly.
How can I save for a pension when I simply can't afford it?
The earlier you start making contributions into a pension means you do not have to contribute large amounts as these funds will have the opportunity to be invested over a longer term and grow in value. If your income improves, you'll be able to increase how much you put away for your pension.
Another key area to look at is budgeting. Complete an audit of your finances to see where your money is going as it could be the case that you simply need to prioritise your budget differently so you can afford to pay into a pension. Do you need all those subscriptions? Can you spend less on clothes? You’d be surprised at how much money can be saved and reinvested elsewhere when you pay attention to your outgoings.
Rod is a qualified Financial Adviser and holds a Diploma in Regulated Financial Planning and the Award in Regulated Pension Transfer Advice. This blog post is intended for information purposes only and although presented by a financial adviser, should not be taken as financial advice for your given situation.
To get in touch with Rod email Rod@gameplanwealth.co.uk and reference TheModernBroker.
To keep up-to-date on The Modern Broker please subscribe below or follow @TheModernBroker on Instagram.