Pensions Awareness Week: The 10 Most Common Pension Questions Answered
As Pensions Awareness Week comes to an end we took the opportunity to ask our financial services team about the most frequently asked pension questions. Here’s what they shared, along with the answers to help guide you through your pension planning.
- How much can I contribute to my pension?
In theory, there’s no limit on how much you can contribute to your pension. However, tax relief only applies up to certain limits. Currently, you can contribute up to £60,000 or 100% of your annual earnings (whichever is lower) per tax year without facing tax penalties. This includes any contributions made by your employer. The rules for company directors are slightly different and a conversation with both your accountant and your financial adviser is vital to make sure you are maximising contributions. In certain circumstances you are able to contribute up to £180,000 in a tax year, get in contact with us if you are looking to make a contribution of more than £60,000 and we will be able to let you know if the higher limit is available for you.
- Can I have more than one pension?
Yes, there’s no limit to the number of pensions you can have although having a large number will make your finances quite difficult to keep track of. Be mindful that the £60,000 annual contribution cap applies to the total amount across all your pensions. Exceeding this cap in a financial year could result in tax charges.
- How much is the UK State Pension?
The current UK State Pension is £221.20 per week, but this depends on your National Insurance contributions. To receive the full State Pension, you need 35 qualifying years of contributions. You can check your National Insurance contributions online.
- What happens to my workplace pension if I change jobs?
If you leave your employer, your pension remains intact. Over the course of your career, you might accumulate several different pensions. Consolidating these pensions into a single pot can simplify your financial planning, its important to make sure you get advice before doing this as you may miss out on valuable benefits. We can review any schemes you have and provide advice on the best way forward.
- Can I work and draw pension income simultaneously?
Yes, from the age of 55 (rising to 57 from 2028), you can continue to work while withdrawing from your pension. However, if you begin drawing from your pension, your future contributions may be limited to the Money Purchase Annual Allowance of £10,000 per year. You can also receive your State Pension while continuing to work.
- Do I have to start my State Pension immediately, or can I defer it?
You don’t have to claim your State Pension as soon as you’re eligible. Deferring it can actually increase the amount you receive later on. The government offers a financial reward for delaying your State Pension, so it’s worth considering if your circumstances allow.
- How much tax will I pay on my pension?
You can withdraw 25% of your pension pot as tax-free cash. The rest of your pension is subject to income tax, similar to your salary, though you won’t pay National Insurance. Your pension provider will deduct the tax owed through the PAYE system before paying your pension.
- How can I track down old pensions from previous jobs?
Finding old pensions can be tricky, but there are a few steps you can take. First, contact your former employers to ask if you were part of a pension scheme. If the company no longer exists, try the Pension Tracing Service, which may have the details you need. Going forward, keep your pension plan number and provider’s name safe to avoid issues later on.
- Can I lose money in my pension?
During the time your pension is invested, its value will fluctuate due to market conditions, this is typically only a “paper loss.” Actual losses occur if you cash in your investments when they’re worth less than what you originally paid. Pensions are a long term investment so day to day fluctuations don’t necessarily cause issues. As you approach retirement, within five to ten years of your retirement date, it’s important to consult a financial adviser to develop a withdrawal strategy and consider shifting to lower-risk investments if you’re risk-averse.
- How much do I need in my pension pot to retire?
This varies depending on your lifestyle and financial needs. However, you can consider a few factors:
- Being mortgage-free can reduce significant expenses.
- Couples can stretch their finances further by sharing costs and benefiting from two State Pensions.
- With increasing life expectancy, your retirement may last longer than anticipated, so plan accordingly. We can provide a cash flow forecast to illustrate your path to retirement and beyond.
The above are 10 of the most common pension questions we are regularly asked.
In honour of National Pensions Awareness Week, now is the perfect time to review your pension and ensure you’re on track for a comfortable retirement. Seeking professional advice can help tailor a pension plan to your needs, ensuring peace of mind for the future. Any pension questions you may have are good ones, you can never be too informed when it comes to your retirement planning.
If you have further pension questions you would like to put to our team of if you would like to speak to a member of our financial services team about your private pension, company or workplace pension arrangements or how you might implement a pension for your team, contact us on 020 7870 9050.
