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Need more help understanding pensions and retirement planning? Have a look at questions we're asked most often.
State pensions
- How much is the State Pension?
- When do I receive my State Pension?
- Do I need to wait until state pension age before I can take my personal or stakeholder pension benefits?
- What is the Second State Pension?
- What is SERPS?
Company pension schemes
- What is a company pension scheme?
- What is a final salary pension scheme?
- What is a Money Purchase Scheme?
- I'm a member of a 'contracted-out' company scheme, does this mean I won't get a State Pension?
- What is an AVC?
Tax
- Do I get tax relief on contributions I pay into a company scheme?
- Is my pension taxed?
- Can I get pension tax relief even if I don't pay income tax?
- What is the Lifetime Allowance?
- What is the Annual Allowance?
Personal and stakeholder pensions
- Is there a limit on how many pension plans I can have?
- What type of investment assets can I have in a self invested personal pension (SIPP)?
- Can I take my personal or stakeholder pension benefits early?
- If I go on maternity leave can I keep on making my personal pension contributions?
- What happens if I die before I retire?
Annuities
- What is RPI?
- What is an Open Market Option?
- Why should I shop around for an annuity?
- Can I take my entire pension as a cash lump sum rather than buying an annuity with part of it?
- Do I need to take tax-free cash?
- Can I change my annuity at a later date?
- How is an annuity paid?
- Can I have a joint life annuity?
- When can I take an annuity?
- What if I'm not in good health?
- What is Income Drawdown?
State pensions
How much is the State Pension?
The full basic State Pension in 2009/10 is £95.25 a week for a single person and £152.30 a week for a married couple. How much you will receive depends on how many years National Insurance Contributions (NICs) you've paid. From 6 April 2010, you will need to have paid 30 years' NICs for a full basic State Pension.
back to topWhen do I receive my State Pension?
If you're a man you'll get your state pension when you reach age 65. For women the State Pension age is 60 but this will rise to 65 by 2020. There are also suggestions that the state pension age for men and women will rise to 68 by 2046.
back to topDo I need to wait until state pension age before I can take my personal or stakeholder pension benefits?
No, personal and stakeholder benefits can be taken any time between age 55 and 75.
back to topWhat is the Second State Pension?
S2P (Second State Pension) is the second, or additional, state pension and is paid in addition the basic State Pension. The amount of any S2P you receive depends on how much you earn and how much you paid in National Insurance Contributions.
back to topWhat is SERPS?
SERPS (State Earnings Related Pension Scheme) is a form of additional State Pension that was replaced by S2P. SERPS benefits depended on how much you earned and how much you paid in National Insurance Contributions.
back to topCompany pension schemes
What is a company pension scheme?
This is a pension scheme arranged by a company or organisation for its employees. The employer will generally make a contribution to the scheme on behalf of each employee who is a member. Employees may also contribute to the company scheme.
back to topWhat is a final salary pension scheme?
A final salary, or defined benefit, pension scheme is an employer run scheme where the amount of pension you receive depends on your salary and how long you've been a member of the scheme. For example, in simple terms, a generous scheme would give you 1/60th of your final salary for every year you've been a scheme member.
back to topWhat is a Money Purchase Scheme?
A money purchase, or defined contribution, scheme is one where your pension is based on how much money has been paid into the scheme and how well the pension fund investments have performed and interest rates at the time you retire.
back to topI'm a member of a 'contracted-out' company scheme, does this mean I won't get a state pension?
You'll still get a basic state pension but you won't earn any S2P (or SERPS) while you're a member of a contracted-out scheme.
back to topWhat is an AVC?
An AVC (Additional Voluntary Contribution) plan is one where you make extra contributions to a pension scheme run by your employer. The contributions you pay will help to boost your total retirement benefits.
back to topTax
Do I get tax relief on contributions I pay into a company scheme?
Yes. Company pension scheme contributions are taken from your gross salary which means that you receive tax relief at the highest rate of tax you pay.
back to topIs my pension taxed?
Yes. When you retire, you may receive income from a number of sources such as the state pension, company and personal pensions and the income from investments and savings. Remember, you're still eligible for personal allowances after you retire. With a personal or stakeholder pension you can take up to 25% of your pension fund as tax free cash.
back to topCan I get pension tax relief even if I don't pay income tax?
Yes, you can pay up to £3,600 per year into a pension and get tax relief.
back to topWhat is the Lifetime Allowance?
The Lifetime Allowance is the total value of pension savings that can be built up in a tax efficient fund. The Allowance for the 2010/11 tax year is £1.8 million. If your pension fund is worth more than this, the excess amount could be taxed.
back to topWhat is the Annual Allowance?
The Annual Allowance is the maximum amount you can pay into your pension plan in any year. The Annual Allowance for the current tax year is £255,000 and will stay at this level until April 2016.
back to topPersonal and stakeholder pensions
Is there a limit on how many pension plans I can have?
No. But you should always seek financial advice if you're thinking about taking out a new pension plan if you're already a member of a company scheme.
back to topWhat type of investment assets can I have in a self invested personal pension (SIPP)?
The range of assets includes
- Stocks and shares listed on a recognised stock exchange
- Futures and options traded on a recognised futures exchange
- Authorised UK unit trusts, Open Ended Investment Companies (OEICs) and other Undertakings for Collective Investments in Transferable Securities (UCITS) funds
- Unauthorised unit trusts that don't invest in residential property
- Investment trusts that are subject to FSA regulation
- Unitised insurance funds from EU insurers
- Deposits and deposit interests
- Commercial property (inc. hotel rooms)
- Ground rents
- Traded endowments policies
- Derivatives products such as a Contract for difference (CFD)
- Gold bullion, which is specifically allowed for in legislation
Can I take my personal or stakeholder pension benefits early?
Normally you have to wait until you're age 55 before you can take your pension benefits. Under some circumstances you may be able to take your benefits earlier if you can't work because of medical reasons.
back to topIf I go on maternity leave can I keep on making my personal pension contributions?
Yes, even if you have no earnings you can still pay up to £3,600 a year and get tax relief.
back to topWhat happens if I die before I retire?
With most modern pension plans, the value of your pension fund will normally be returned to your dependants if you die before you retire.
back to topAnnuities
What is RPI?
RPI (Retail Prices Index) is the most common general purpose measure of inflation in the UK. It effectively shows the change in the cost of living by tracking the prices of a list of essential consumer goods and services. It's published each month by the Government to show how prices generally have risen or fallen. Some annuities are linked to RPI so the annuity payment increases when prices increase.
back to topWhat is an Open Market Option?
It's simply an option under your pension plan that lets you shop around for the best annuity rates when you come to take your pension benefits.
back to topWhy should I shop around for an annuity?
Annuities are just like many other types of insurance and some annuity providers will be able to offer you a better deal than others.
back to topCan I take my entire pension as a cash lump sum rather than buying an annuity with part of it?
Only if the combined total value of all your pension funds is less than £18,000 (in 2010-11). Even if you take it all as cash, only 25% is tax free and you'll have to pay tax on the rest.
back to topDo I need to take tax-free cash?
No. It's entirely up to you how you take your pension benefits as long as you stick to the rules.
back to topCan I change my annuity at a later date?
No. Once your annuity is set up, you can't make any changes to it. That's why it's important to take financial advice and look around for the best annuity deal for you.
back to topHow is an annuity paid?
Annuity payments can normally be paid monthly, quarterly, half-yearly or yearly.
back to topCan I have a joint life annuity?
Yes. With this type of annuity, should you die, payments will then be made to your spouse, partner or financial dependant for the rest of their life. If your financial dependants are children, the annuity will usually pay until they reach a certain age, which may vary.
back to topWhen can I take an annuity?
You can use your pension fund to buy an annuity at any time between age 55 and 75. You may be able to buy an annuity earlier if you're not in good health.
back to topWhat if I'm not in good health?
You may be able to purchase an enhanced annuity (sometimes known as an impaired life annuity). This pays out a higher benefit than a normal annuity.
back to topWhat is income drawdown?
Income drawdown is an alternative to using your pension fund to buy an annuity. With income drawdown your pension fund remains invested but you withdraw part of it every year to provide you with an income.
back to top