Pensions are, of course, designed to enable you to save sufficient money during your working life to provide an income stream for you to live comfortably after you have retired.
There are many different 'tools' used to save for retirement and the taxation and investment elements of pensions can appear baffling. We specialise in explaining, recommending and monitoring pensions for you. Below are the most common sources of pension to fund for your retirement.
Single Tier State Pension
The new State Pension came into effect on 6 April 2016.
You'll be able to get the new State Pension if you are eligible and:
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a man born on or after 6 April 1951
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a woman born on or after 6 April 1953
If you reach State pension age before 6 April 2016, you'll get the State Pension under the Basic State Pension and Additional State benefits headers as shown below.
The full new State Pension will be £175.20 per week (2020/2021). Your National Insurance record is used to calculate your new State Pension. You'll usually need 10 qualifying years to get any new State Pension. 35 years qualifies for the full amount.
The amount you get can be higher or lower depending on your National Insurance record.
The Basic State Pension (BSP)
The basic state pension (BSP) is set by the Government each year. The full BSP for 2020/21 is £134.25 a week. If you don't have enough National Insurance contributions credits to get the full BSP, you may be entitled to a lower amount based on the years of contributions or credits on your record.
You may be able to get a BSP or increase your BSP using your spouse or civil partner's national insurance contributions. This could be up to a maximum of £80.45 a week.
Additional State Pension (ASP)
The additional State Pension (known as the State second pension (S2P), formerly SERPS) is not a fixed amount. It depends on your earnings on which you paid national insurance contributions, and whether or not you were contracted out through your workplace or personal pension.
The additional State Pension is not available to you if you’re self-employed.
An Occupational Pension (through an employer pension scheme)
This could be a Final Salary Scheme (sometimes referred to as a Defined Benefit scheme) or a Money Purchase scheme (usually referred to as Defined Contribution). Pensions deriving from Final Salary schemes are usually based on your years of service and final salary multiplied by an accrual rate, commonly 60ths. The benefits from a Money Purchase scheme are based on the amount of contributions paid in and how well the investments in the scheme perform.
Personal Pensions Scheme (including Stakeholder schemes)
These are also Money Purchase schemes and are open to everyone and especially useful if you are self-employed, your employer doesn't run a company scheme or just for topping up existing arrangements. From October 2012, the Government introduced reforms and all employers have to offer their employees, who meet certain criteria, automatic enrolment into a workplace pension. Employers can use the Government backed scheme, National Employment Savings Trust (NEST), or offer an alternative ‘Qualifying’ work place pension scheme such as a Group Personal Pension, providing it ‘ticks’ certain boxes. Employers are required to contribute a minimum of 3% of salary with Employees making a personal contribution of 4% with tax relief of 1% added on top.
State Pensions may not produce the same level of income that you will have been accustomed to whilst working.
State Pensions may not produce the same level of income that you will have been accustomed to whilst working. It's important to start thinking early about how best to build up an additional retirement fund. You're never too young to start a pension - the longer you leave it the more you will have to pay in to build up a decent fund in later life.
Retirement Considerations
Given that there is now a multitude of products available at retirement it is important that individuals seek independent financial advice before making any decisions.
THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE TAXATION ADVICE.