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Nine things you need to know about pensions

There seems to be a day about everything, and today is no different as 15 September has been declared National Pension Day. However unlike National Felt Hat Day and National Crème De Menthe Day (both also 15 September), increasing awareness of pensions is something that should be celebrated.

A pension is a good way to save for your future and ensure you’re set up to have money in retirement – and most people know that. So why are pensions a big switch off for many?

One reason could be that they might not seem a priority. The future can seem a long way away when you’re struggling to make ends meet in the here and now.

They can also be difficult to understand. There are so many different pension options and jargon to get your head around, it can sometimes feel overwhelming and complicated.

If these seem like reasons you’ve been neglecting your pension, a little guidance could be just what you need.  

Jackie Spencer, the Money Advice Service’s Pensions and Retirement Expert, has given us nine things you need to know or consider when it comes to pensions:

1. Think about how much you are likely to need for your retirement  

To keep the lifestyle you want, work out how much you'll need each year - and how many years you’ll need it for.

In turn, think how much you’ll need to put aside during your working life to meet this.

2. Start saving sooner rather than later

The longer you put it off, the more you’ll need to pay in later on to reach your desired retirement income.

3. Are you auto-enrolled?

Check with your employer to see if they offer a workplace pension. Currently an opt-out (rather than opt-in) system is being rolled out – it originally started amongst larger companies but is now rolling out amongst medium and small sized companies.

This essentially means you are auto-enrolled to have at least 1% of you salary going towards your pension – and with this, your employer matches the contribution or may choose to contribute more.

4. You could be getting 20% extra contributions for free

If you pay the money into your pension yourself, or if your employer takes it directly from your pay packet, you automatically get 20% contribution from the Government in the form of tax relief. It’s a helpful additional amount deposited into your pension pot.

5. Check what type of pension you have

Defined Contribution Pensions build up a pension pot using your contributions (and if applicable, your employer’s input) plus investment returns and tax relief. 

Defined Benefit Pensions are different, in that the amount paid to you at retirement is set by a formula based on how many years you’ve worked for your employer and the salary you’ve earned. If you currently work or have worked for a large employer or in the public sector, you may have a defined benefit pension.

6. Your family can benefit too 

Having pension savings is not only a good way to save money for retirement, but it can also help provide security for your loved ones too.

For example, if you die before the age of 75, your pension pot can be passed on tax free to a nominated beneficiary. However, if you pass away after 75, and your beneficiary wants a lump sum they will have to pay 45% tax - though after 6th April 2016 this money will be taxed at the beneficiary’s income tax rate.

7. Could you cope on the State Pension?

The State Pension is a pension paid by the Government when you reach State Pension age, which you get when you have paid or been credited with National Insurance contributions, with the current weekly amount being £115.95. If you are not currently planning on making any additional provisions for your pension, it is important to consider very carefully if this is an amount you’d be able to live off.

8. Know all your options

Following changes introduced in April 2015, you now have more choice and flexibility than ever before over how and when you can take money from your pension pot. Take your time to understand your options, by using the Money Advice Service retirement income options tool.

9. Be wary of pension scams

There are many different types of scams, but this is essentially when fraudsters attempt to steal your pension savings. Since the new pension freedoms in April 2015, incidences of scams have been on the increase. They will often take the form of investing pension money with the promise of large returns. If a retirement investment seems too good to be true – it probably is.

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  • Mr Prakash Somabhai Suthar / 29 September 2016

    Thanks! Very very helpfull- but getting financial Addvisors this days are very expensive After paying in Pension for long time-Some one should be helpful to help us but not to chit us

  • LINDA D. HAZZARD / 16 June 2016

    Please could you advise on a query about I worked for many years in part-time Tutoring years and there was no pension. One Further Education college area I worked for 6 years on a 0.5 basis and another FE college I worked for 3 years for 16 hours a week because of being a single parent.

    Is there any redress about this situation.

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    ADMIN: Hi Linda, you can call The Pension Advisory Service on 0300 123 1047 and they'll be able to help you further

  • Ian Feltell / 16 June 2016

    Excellent!

  • David John Lewis / 15 June 2016

    I am sad to learn that you are having to wind your excellent service down! I do have a question about one of my personal pensions. When I was self-employed I took out three private pensions. In about 1991 / 1992 we had what they lice to call a recession.

    Two of my biggest clients were book publishing firms. One was owned by the late Robert Maxwell (talking of pensions!!) and the other is still owned by the aother "ducker & diver" who is still with us and still ducking and diving although he is worth millions. These two companies took ages and ages to pay. In total ,y company was owed £30,000. I never ever got paid by the Maxwell lot but the the time the other lot paid me I had used up my overdraft of £30.000 from the NatWest Bank. I had been with them since I was 16 and it was known as the National Provincial. The bank forced me to hand over the deeds to my Chelsea flat which I paid only £8,750 for as a sitting tenant. The bank and the Abbey National Building Society forced me to sell it for which I got from a Spanish women who was buying up flats in the block like hot cakes! To this day, I feel she was money laundering on behalf of some syndicate. However, I lost my home. one I had paid off all my debts. but because of lack of income I had to put my private pensions on hold. When I reached my retirement at 65 I took all three pensions of which I had to pay two different brokers lots of money as the pension firms would not let me deal directetly with them. I believe the law has now been changed.
    One of the three pensions is SO small, £147 per years that I take it just before Christmas. I think the pension pot is worth about £4,000. I have asked the pension company if \i could take this £4,000 as a lump sum now but they have said that I cannot. Is this information correct? Thank you. With kind regards,.

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    ADMIN: Hi David, you can call The Pension Advisory Service on 0300 123 1047 and they'll be able to help you further

  • deborah sheridan / 9 June 2016

    I need to claim from my ex husbands private pension no financial settlement due to domestic violence and injunction I am 62
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    ADMIN: Hi, you can call The Pension Advisory Service on 0300 123 1047 and they'll be able to help you further

  • Sylvia Lamb / 8 June 2016

    I have a pension with Standard Life. It is a private pension and originally I would have been under the Mirror Group Pension scheme but had it moved whilst still at work. I am surprised however, that it only increased by about £1 since I have had the pension from the age of 50 and I am now 65years old. Is this normal?
    ----
    ADMIN: Hi, you can call The Pension Advisory Service on 0300 123 1047 and they'll be able to help you further

  • Jack / 6 June 2016

    The government is adding 25%! If you are taking about helpful helpful additional amount.

  • Margaret Brooker / 22 October 2015

    I think this is helpful but for those already in their late 50s and early 60s is that they face sudden change to pensions just they end work, which limits options, as their plans have already happened or not. Knowing how to deal major change when the time is already up is scary and difficult. On a low income, affording private advice is out of the question. The government has implemented radical change and should be providing advisors. Only the wealthy can really take advantage. So many people have already lost their pensions to fraud.

  • Alan Ward / 13 October 2015

    I think the topics you have raised are very important and need to be considered, as I am now retired.
    However the governments intervention on private pensions is unecessary as the insurance company you bought it from will tell you how best to use it and the government has no control over my private pension.

  • Jennifer Tsivor / 7 October 2015

    I was told that l will receive my late husband state pension when l reach the pension age. He died at the age of 54yrs . Please is that lump sum money or just weekly payments?

  • John Humphreys / 7 October 2015

    In the new era of Pensions Reforms, how is it that my Pension company Friends Life do not offer the choose of Income Drawdown. If I want to go down this route, then I would have to transfer my Pension Fund to somewhere else.

  • John Humphreys / 7 October 2015

    In the new era of Pensions Reforms, how is it that my Pension company Friends Life do not offer the choose of Income Drawdown. If I want to go down this route, then I would have to transfer my Pension Fund to somewhere else.

  • Janet / 7 October 2015

    Good Idea, BUT I have only just found out that as I paid in for a Company/Private pension that means I was "contracted out" and so, therefore, I am now not going to get the "New Flat Rate Allowance" - even though I have paid in for the full qualifying years, - this flat rate allowance will be reduced as I was apparently contracted out - how many other people realise this - as I had no idea about this.

  • T R Davies / 7 October 2015

    Your views on pensions seem to be only useful if you are still at work .
    If like me you have had to finish through ill health there is no one available to give you advice.
    Banks just want to lend you more money.The DWP aren't interested unless you are from another country . What about people like myself who have worked full time for over 40 yrs and not been living in the " cocoon" they call London and have never earned large amounts to give themselves a good retirement. " Struggle" you don't know the meaning of the word let alone spell it.
    Get your act together and start helping people here and when we are back on top then look at helping others.

  • Paula / 6 October 2015

    Please help me understand how I am a widow so also have part of my late husbands pension with mine, my husband unfortunately left me with no insurance or mortgage protection so I am now paying rent and bills so life is not easy.....However I thought I would help myself and so do temp work for a hospital which gives me £1500 -£2000 a year, because I do this I am taxed 50% and I do not understand. I ha e friends do who gets a pension and earns £30000 a year but only gets taxed 23% how does this work

  • Linda Whiteside / 6 October 2015

    I will start receiving state pension as of the 6th of November this year. I'm divorced and disabled, so reading your guide is really helpful as worried that i will struggle money wise 😉

  • Patricia Lee / 6 October 2015

    Pension £70.00 per week (On husbands Contributions) . Age next birthday 77 . Is there naything I can do to enhance this low sum ?

  • Paul giles / 6 October 2015

    I would not advice anyone to put money into a works pension as I did and so did 285000 miners did for the government to take 8billion out of our pension pot and still are, they took 755million this year alone,you asked me for my views.

  • Carole Graham / 6 October 2015

    Thank- You for contacting me - I am already retired but I find your views helpful and interesting.

  • Sandra Carty / 5 October 2015

    I love this website it keeps you up to date. Im wonderingwill I be able to take some money from my work pension that Im already receiving?

  • Sandra Carty / 5 October 2015

    I love this website it keeps you up to date. Im wonderingwill I be able to take some money from my work pension that Im already receiving?

  • Nick / 5 October 2015

    I know that as I have worked for different companys over the years how can I track down bit of pentions that I might have? also is it possible to transfer state pention to a private one?

  • trevor / 5 October 2015

    very interesting stuff

  • Eric Collymore / 5 October 2015

    I was in the military back in 1976 to 1982. Is my military pension safe? Since than I have been in and out of work, with long periods of unemployment. Are my contributions enough?

  • Eric Collymore / 5 October 2015

    I was in the military back in 1976 to 1982. Is my military pension safe? Since than I have been in and out of work, with long periods of unemployment. Are my contributions enough?

  • Pauline Cartwright / 5 October 2015

    I have 6 pension pots, can I take 25% tax free from each pot then leave the rest until I nead it. I am 57 and would love like to pay off my mortgage with this money. The pots together are working worth about £225,000.00 .

  • Miss Eirwen Roberts / 4 October 2015

    Very helpful and relevant

  • John swash / 4 October 2015

    You need a good disposable income to save for a pension how is this possible on or neer the minimum wage

  • John swash / 4 October 2015

    You need a good disposable income to save for a pension how is this possible on or neer the minimum wage

  • Pedro angarita / 4 October 2015

    excellent advide

  • mrs sharon livesey / 4 October 2015

    I will not get my s pension which will be in 6years time I work part time so I have so little money I think I will get 115 pounds but I own my house so I wont have any rent so there not much I can do is there

  • Linda Cox / 4 October 2015

    I have recently taken my private pension in a lump sum which had over £2,500 deducted for tax. However, I was in receipt of working tax credits. They have now clawed back the credits for the last 6 months I worked. I am having to repay them and was totally shocked on finding this out. I am appealing as I was never informed that tax credits could be affected in this way. Is this happening to many people? I feel It's grossly unfair.

  • Vivienne Kelly / 4 October 2015

    I have a very specific question, the nine points above have not even hinted at and despite trying many agencies for some advice, I still cannot get a definitive answer. You 9 points were quite interesting but not I felt such giving a real understanding of what is a 'minefield' with all the numerous products that are available.

  • ALASTAIR WEST / 4 October 2015

    I have an SIPP and this information was confirmation that I have made the right decision.

  • Gurnam / 4 October 2015

    This is useful and timely as I need to make a decision about a pension scheme that will meet my future needs once I retire. Knowing what questions to ask without the jargon will hopefully help me to make the right decision. Thank you.

  • Marilyn gilmour / 4 October 2015

    That was very informative about pensions can I have some info on trusts