Pension FAQs

Well, when you’re older and no longer working, or perhaps working less, you’ll still need some money to pay your bills and to be able to enjoy the fun stuff – a pension provides you with an income for this.

You don’t have to have a pension. You may have other savings or investments that you plan to live on, but the Government decided in 2012 that, by law, you have to be enrolled into a workplace pension scheme automatically, if you are at least 22 years old, under State Pension age and earn a minimum of £10,000 a year.

You can opt-out of the workplace pension scheme, if you want to, but as your employer sets this up for you and add some of their own money into your pot too, plus you get tax relief from the government, it makes sense to stay in.

Your State Pension is paid to you by the Government and is in addition to any workplace pensions or private pensions you may have. The State Pension probably isn't enough on its own to provide a comfortable retirement, but it's a good boost to your savings and you should factor this into your retirement plans.

The amount you’ll get depends on how many qualifying national insurance contributions or credits you’ve made - you get these automatically either from working or being in receipt of benefits.

The full new State Pension amount is currently £203.85 per week and to get the full amount you’ll need a total of 35 qualifying years of national insurance contributions or credits - but you will get something if you have a minimum of 10 years national insurance contributions or credits.

You can check your national insurance record and how much State Pension you’re likely to get by doing a State Pension Forecast.

When you’ll get your State Pension depends on your date of birth, so it’s worth checking your State Pension Age on the Government’s website.

When you pay into your pension, some of the money that you would have paid in tax on your earnings goes into your pension pot instead – this is called tax relief.

The amount of pension tax relief you get on your pension contributions depends on the top rate of income tax you pay:

Basic rate = 20%

Higher rate = 40%

Additional rate = 45%

For example, if you are a basic-rate taxpayer and were to contribute £100 from your salary into your pension, it would actually only cost you £80. The government adds an extra £20 on top – what it would have taken in tax from £100 of your salary.

As soon as you can - even if it’s just with a small amount. The money you pay into your pension is invested and the longer you can leave your savings invested, the more time it will have to grow.

If you start saving in your 20s, it’s much easier to build up a good pension pot by the time you retire than if you were to start later. It’s all down the magic of compounding. If you started later, say in your 30s or 40s, you'd need to save much more to catch-up, and provide you with the same level of income in retirement.

The introduction of auto-enrolment means that, legally, there are total contributions that have to be paid into your pension. The current minimum contribution is 8%. Your employer has to pay 3% of this and you must make up the other 5%.

If you can afford to pay in more than the minimum though, you should try to. When it comes to retirement, saving as much as possible, as early as possible, is the best way to build up a substantial pot of money for your future.

A really good rule of thumb to work towards is saving half your age. So, if you start saving at age 22, you should be considering saving at least 11% of your salary into your pension.

Don't worry. You can reduce your contribution to a level that's more affordable or you can stop making contributions altogether, then restart again, when you're ready.

There's no charge for reducing or stopping your contributions. However, the amount you get back in the future will be reduced if you choose to stop or pause paying in, and you’ll miss out on any employer contribution and tax relief.

If you can, rather than stopping or pausing all contributions, talk to you employer about reducing your contribution - this way, you’ll still get your employer contribution and tax relief.

If you do need to pause your pension, try to keep the length of time you do this to an absolute minimum.

If you’re eligible to receive maternity pay during your leave, your employer will keep contributing to your work pension – and they’ll pay in the same amount as before you went on maternity leave.

You will also keep contributing to your pension but your payments will be based on your maternity pay, not your usual pay, so this means you might be paying less into your pot.

Your employer might let you stop or pause contributing to your pension while you’re getting maternity pay, but it’s worth continuing to contribute if you can afford it. Pausing or stopping your contributions means you’ll stop building up your retirement savings, so you’ll get less in the future.

If you’re not getting maternity pay

Your employer will stop contributing to your pension if you’re on maternity leave but not getting maternity pay, or your maternity pay has finished. Usually your contributions will stop as well, but you can contribute directly if you want to.

If you leave your job or move jobs, you’ll stop paying into your current workplace pension and any employer contribution will also stop.

Your pension still belongs to you and the money will remain invested until you take your pension.

Your new place of work will have a different pension scheme, and this may be with a different provider to your previous employer. Assuming you qualify, you will be auto-enrolled into another workplace pension scheme if you get a new job.

It is possible to combine all of your different pension pots to make them more manageable. First of all, the most important thing to understand is whether or not your pension is a defined benefit scheme or a defined contribution scheme.

If it’s a defined contribution scheme (DC - which most are nowadays) you need to check with the pension provider that you can move it and before you do anything, ensure that you’re not going to lose out on any benefits, guarantees or special features by doing so. You’ll also want to compare the charges - each different pot you have is charged a management fee by the provider and schemes are allowed to charge different amounts.

If you’re unsure of whether combining your different pensions is right for you, it’s worth speaking to a financial adviser.

If your pension is a final salary scheme (also known as a DB scheme) generally, it’s not a good idea to transfer out of this, as you would be giving up a fixed income for a less certain one and it’s possible you’ll be worse off. It is also usually a legal requirement to seek independent advice before transferring a final salary pension - as this is a big decision and cannot be reversed.

For further help with this topic, go to Money Helper

You can retire whenever you want but you’ll need to make sure that you have enough money to live-on.

You can take money from your pension from age 55 (age 57 from 2028) but remember, the money may need to last for the whole of your retirement, so plan carefully.

When you’ll get your State Pension varies from person to person and is gradually increasing for men and women – the State Pension age will reach 67 by 2028.

To find out when you’ll get your State Pension, check your State Pension Age

You should receive a yearly statement from any of your old pension schemes, but, if for example, you’ve moved address and not let your pension provider know, then they won’t have the correct information to send this to you.

If you’ve lost track of any pensions, the first step is to check any old paperwork you have to find out who the pension provider is. Once you’ve found this out, email or call the company providing the pension and ask them for more information about your savings.

If it’s a workplace pension you’re trying to track down, you could also try contacting the company you used to work for.

If you can’t find any of these details – The Government offers a free Pension Tracing Service to help you track down any missing pension pots. You can visit their website for further help: gov.uk/find-lost-pension

The earliest you can access your pension is age 55. This is set to increase to age 57 from 2028. You don’t have to retire or stop working to take your money.

If you are in ill health, there may be some circumstances where you could access your pension money earlier. It’s worth speaking to your HR department or pension provider to find out.

When you’re ready to take your savings, you have a number of options. The main options are:

• Buy an annuity, which will provide you with a guaranteed income for life.
• Take your whole pension as cash.
• Take a flexible income – also known as drawdown.

You can also take a combination of these options if you want to, and whichever option you choose, the first 25% you take is tax free.

Choosing how to take your money is a big decision, and once you’ve made a choice you usually can’t reverse it. The best thing to do is to arm yourself with as much knowledge as you can. Money Helper is a good place to start. Money Helper is a free government-approved online advice service, providing impartial guidance on money and pensions choices.

Under the Money Helper umbrella, there’s a free and impartial guidance service available, called Pension Wise. Pension Wise has been specifically set-up to help you understand the different ways you can take your money and you can have a personalised chat with one of their guiders either over the phone or face to face.

If you don’t feel confident making a decision, it is recommended you seek independent financial advice. You will be charged for financial advice.

Pensions are protected in various ways to make sure you don’t lose out.

Your pension funds are managed by the pension provider (not your employer), so if the worst did happen and your employer goes bust, your pension has some protection. If your pension provider goes bust and cannot pay your pension, the Financial Services Compensation Scheme (FSCS) would pay 100% of the claim under specific circumstances.

No savings, including pensions are entirely risk free. The value of your pension can go down as well as up, but there are stringent controls in place to minimise risks to pensions.