Are you like the proverbial ostrich, burying its head in the sand? Then you are not alone. It is thought a staggering 65% of women don’t have a handle on pensions, and generally lag behind men in this area. But the information is important for all; so, if terms like annuity, draw-down, defined benefit mean nothing to you – then read on!
A good place to start…
For many of us, the state pension will be the bedrock to our retirement planning. So, it is a good idea to check what level of National Insurance contributions you have built up so far. You can also check your planned retirement age, whether you have been contracted-out for any period and look at any gaps you have in your record.
www.gov.uk/new-state-pension/your-national-insurance-record-and-your-state-pension
www.gov.uk/check-state-pension
If you are already 50+
If you are aged 50 or over, you can get an appointment with Pension Wise for free. The advice is impartial government guidance about how to manage any personal or workplace pensions you might have.
www.yourpension.gov.uk/mid-life-mot/
Lost Pensions
Nowadays we may have many jobs during our lifetime. Sometimes paperwork gets mislaid, and we forget to tell old employers we have moved address.
If you think you might have had a pension, then you can use the Pension Tracing Service to find out.
www.findpensioncontacts.service.gov.uk/
Already in receipt of the state pension?
This Is Money, and former Pensions Minister – Steve Webb have uncovered a scandal hitting around 200,000 women. Those who are married who retired on small state pensions before April 2016. Some widows and some who are 80+ may have had under-paid state pensions. Read more about whether you may be caught up in this, and how to get things investigated: www.thisismoney.co.uk/money/pensions/article-9330765/How-state-pension-low.html
Jargon – Put Simply:
Annuity
When you use your whole pension pot to purchase an annuity, to give you a guaranteed amount of income for your lifetime.
Flexi-Access Drawdown
Instead of buying an annuity, you place your money into a drawdown scheme, and take money out of the pot as and when you need to.
DC Pensions
Defined Contribution Pension – your contributions are invested, what you end up with will depend on how well the investments perform.
DB Pensions
Defined Benefit Pension. Sometimes these are called guaranteed pensions, you may have one from a past job, but are unlikely to be offered one today. They are based on a final or average salary. This will give you a guaranteed amount of income each year.
Tax Free Lump Sum
Pension freedoms have allowed people to access retirement funds from an early age (currently 55), even if they are still working. It also gives you the option of taking a 25% lump sum that is tax free.
Contracted Out
“Under the old State Pension rules, up to 5 April 2016, you were able to ‘contract out’ of the additional State Pension. This meant that you and your employer could pay less NI contributions into the state system. You could not contract out of the basic State Pension. You could only opt out (‘contract out’) of the additional State Pension, and you could only pay less NI contributions into the state system if you were part of a private pension – such as a workplace or personal pension scheme – that could build up to replace the State Pension you were opting out of.”
Need to Know:
- In the pension industry, there is a rule of thumb about how much you should save into a pension.
Start with the age you start paying into a pension. Then halve that number. That is the percentage of your pre-tax salary/earnings that should go into your pension provision annually. If you are employed, then your employer may well be making contributions that can make up part of this percentage.
- Auto-enrolment, now requires that most employers offer their staff a pension. Your employer will contribute a minimum of 3% and the employee 5%.
www.moneysavingexpert.com/savings/auto-enrolment/
Financial Advice
- Financial advice can seem costly. You can expect to pay in the region of £750 for a full pension assessment. However, retirement savings and planning are a complex area. Specialists can take it into account anyone you may need to provide for after you’ve passed away. How to get a better deal if you have health conditions that may shorten your life. Tax advice that ensures you are not penalised by drawing down too much. With freedoms, have come more choice, but also more complications. An expert can ensure you can utilise your money in a way that will provide for your long-term future.
- Part of pension planning, is understanding how much you will need to live on when you retire. Plus, the sort of lifestyle, you want to have. Generally, a minimum acceptable living standard would be £18,700 each as part of a couple. You also need to understand the value of any current pension pots.
www.moneyadviceservice.org.uk/en/tools/pension-calculator
- From April 2021 a full state pension is £179.60 per week. You require 35 years of National Insurance contributions to receive the full amount. This amount may also be lower if you were contracted-out (see above) at any time.
*The Content is for informational purposes only, you should not construe any such information as legal, tax, investment, financial, or other advice.
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