Savvy England
Savvy England
Savvy England

Searching for Pension information in September 2018? Full UK Guide, Helpful Content, Compare Quotes, Plans and More!

By Phillip Gray
Founder and Editor
retirement old age money Want to find out further information regarding UK Pensions? If so, you’ve came to the right place.

This section has been created to help members of the British public understand their financial position more easily, here you’ll find great guides, helpful content and unbiased informative pieces.

After you’ve finished reading this section, remember to visit our fantastic Pension Comparison Quotes Section, this highlights all the latest ‘deals’ and ‘special offers’ from providers across the country. You never know, you may find yourself a cracking deal!

So, what are you waiting for? Let’s get started with learning more about pensions in the United Kingdom!

What is a Pension?


In basic terms a pension is a ‘fund’ which holds an amount of money and is used for retirement. Typically, money will be added during the employees ‘working years’, so they can enjoy an easier life when they finish working. In most cases pensions will be paid regularly, this is normally once a month, in the same manner a wage is paid to employees.

In the UK we have different types of pensions, these are State Pensions paid by the Government, Workplace Pensions and Individual Pensions. This is explained in more detail further down the page.

Sometimes people confuse pensions with severance pay, the two are not the same. As stated, pensions are usually paid in regular installments for life after retirement. However, severance pay is normally a ‘fixed amount’ of money, after involuntary termination of employment prior to retirement. This means a person can receive a severance payment and pension at the same time, should they have reached the correct age requirements.

Did you know? It was not until the ‘Old Age Pensions Act 1908’, that people were given 5 shillings (£0.25) a week for those aged over 70 and whose annual income did not exceed £31 10s. (£31.50). It wasn’t until the early 1990s, which established the existing framework for state pensions in England.

Types of UK Pensions


retirement plan pension great britain In the United Kingdom, we have three main types of pensions, please click on one of the links below, to find out more information:

  • State Pension – Typically ‘most’ people will get some form of state pension, it’s paid to you by the British Government and is ‘for life’. It will normally increase each year at the rate of inflation.

    As of 2018, you’ll receive a state pension at 65 for men and between 60 to 65 for women. The female pension has a ‘gradually increasing’ age limit, depending on when you were born. To be eligible for a full State Pension, you will need 35 years National Insurance record. You’ll usually need around 10 ‘qualifying years’ on your national insurance record to qualify.

  • Workplace Pension – You’ll normally be ‘auto-enrolled’ in most workplace pensions if you meet the correct criteria. The workplace pension can also be known as an ‘occupational’ or ‘works’ scheme, this is a way of saving for your retirement. Typically, a percentage of your wage is put into the company pension scheme every ‘payday’. Generally, your employer will also ‘add’ money to the scheme for you. Once you reach retirement age, you’ll be able to ‘draw’ the money to live on.

  • Individual / Personal Pension – These are separate from workplace or state pensions, you’ll usually arrange this yourself. They’re sometimes known as ‘defined contribution’ or ‘money purchase’ pensions. You’ll usually get a pension that’s based on how much was paid in. Normally the cash you put into the scheme is placed into investments, such as shares by the pension provider. The money you’ll get from a personal pension usually depends on how much money you've paid in, how the investments have 'performed' and how you choose to take your money.

Tax Relief on Pension Contributions


Sometimes it can be hard to understand the tax implications of pensions, here’s a basic overview. If you’re a UK taxpayer, the standard rule (as of 2018-19 tax year) is that you’ll receive tax relief on pension contributions of up to 100% of your earnings or a £40,000 annual allowance, whichever is lower. If you make ‘contributions’ over the annual allowance, this won’t be valid for tax relief and you may be subject to Income Tax.

For example, let’s say you earn £30,000 a year, but decide to ‘top up’ your pension pot with £5,000 from savings. This would mean you’ll only get tax relief on the £30,000 as this is 100% of your ‘earnings’.

Equally, let’s also say you earn £70,000 and would like to put that amount into your pension pot, you’ll only get tax relief on £40,000 as this is the ‘annual allowance’ limit.

Though, you’ll be able to ‘carry over’ unused allowances from the last three years, this only applies if you were a ‘member’ of the pension scheme during those years.

However, this may not always be applicable if you have a personal / individual pension, also known as a ‘defined contribution’ which you begin withdrawing money from. This is because in ‘some’ situations the annual allowance then reduces to £4,000.

If you’re unsure about how tax can affect your personal situation, please get independent advice for a financial advisor. They will be able to assess your circumstances in further detail and advise accordingly.

Making the ‘most’ of your Pension


We all want to make the most of our pensions, after all they will be our main income once we retirement. The usual advice is to ‘check’ your pension situation on a regular basis, this can be every year or every couple of years. Sometimes you may find a shortfall in your saving, it’s ‘best’ to rectify any problems while you can. Here’s some things you should consider:

Review Regularly
As previously mentioned, you should continuously ‘monitor’ your pension, if you have a workplace or individual pension you’ll normally be able to state how the pension pot is ‘invested’. Obviously different investments carry different risks, it’s up to you to judge what is correct for your requirements. Usually you may be able to take more of a ‘risk’ when your younger, compared to when your older. If you’re unsure about which option to take, speak to an independent financial advisor.
Claim your Tax Relief
Tax can seem confusing at the best of times, never mind if you have one or more pension pots. Typically, if you’re a high rate taxpayer who makes contributions to a personal or workplace pension, you’ll normally get the basic rate tax relief. Remember higher rate tax usually needs to be ‘claimed’ on your self-assessment tax return. It’s always worth your while to get your tax relief correct, after all, it may mean you can gain from bigger contributions.
Increase Savings
Although a fairly obvious suggestion, if you can increase your savings while you’re working, this is clearly beneficial in the ‘long run’. Generally putting spare money into a pension is one of the most tax-efficient ways of investing it.

In addition, any extra proceeds you save into a pension will be topped up by the taxman. If you have a workplace pension scheme which your company / employer contributes to, they may also top up the pension too. You’ll need to read all the documentation to see how this applies to your situation.
Have Multiple Pension Pots?
Some people will have multiple pension schemes, for example a personal pension and a workplace pension. If this applies to you, then you ‘may’ be able to ‘merge’ the pots together. This obviously will depend on the providers and individual circumstances.

By merging you can typically keep track of the savings more easily, sometimes you can save more money by using a ‘lower-cost’ scheme compared to a ‘higher-cost’ scheme. You may also be able to investment more heavily, as you’ll have more ‘cash’ available to use. However, you must always remember investments can increase as well as decrease.
Withdrawing Small Amounts
Some schemes will allow you to withdraw small amounts from your pension pot, however should you do this? In most cases there will be tax ‘implications’ and you could potentially risk running out of money. Typically, ‘for each’ withdrawal of money, the first 25% will be tax-free, however the additional 75% will normally be taxable. Equally there may also be ‘charges’ which will need to be paid to your provider.

Certain schemes will also only allow a ‘certain amount’ of withdrawals each year. In most cases its recommended to avoid withdrawing money if you can help it, of course life doesn’t always work in this manner. However, as your ‘pot’ reduces with every cash withdrawal, it may be a better idea to think of other options first.
Withdrawing the whole Pension Pot as Cash
In most cases it’s not recommended to withdraw your whole pension pot as cash. Similar to withdrawing small amounts of money, you’ll typically receive the first 25% tax-free, however the remaining 75% will be applicable for tax at your ‘highest tax rate’. Generally, the majority of people will have to pay a huge tax bill, meaning this route isn’t always the best option.

In addition, you could easily ‘run out’ of money and have nothing to live on during your retirement. Remember a pension is basically there to replace a wage, as best as it can. The idea is to be paid monthly or weekly, so you can keep a certain standard of living.

Original Publication: 01 May 2017
Last Updated: 08 May 2018

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