Pension Frequently Asked Questions (FAQs)
Pensions can be daunting, and it’s natural to have lots of questions. This list of Frequently Asked Questions (FAQs) is designed to answer some of the most common questions our customers ask us about pensions.
What is the State Pension age?
Following a recent review, the government has announced plans to bring this timetable forward. The State Pension age would therefore increase to 68 between 2037 and 2039. The retirement age has risen in the past (in April 2020 it rose to 66 for men and women alike) and there are new rises planned. Under the current law, the State Pension age is due to increase to 68 between 2044 and 2046. There is a government website where you can quickly and easily check your State Pension Age.
How much would I get from a State Pension?
The current State Pension is £179.60 per week but this depends on your National Insurance record of contributions.
A State Pension forecast is available which will tell you how much State Pension you could get.
You can also check your National Insurance contributions record by getting a National Insurance statement. This will show if you have any gaps in your history.
What pension options do I have when I retire?
When you retire, there are a number of ways to turn your pension pot into an income. Check out our other pages which will tell you more about the following options:
- Taking the whole pot
- Buying an annuity
- Pension drawdown
- Taking lump sums and leaving the rest invested
What is a defined-contribution pension?
This is the most common type of pension and is very often a workplace pension provided by your employer. When you reach your chosen retirement age, the size of your pension pot will depend on how much you, and your employer where applicable, have paid in, how the funds in which your pension savings have been invested have performed, and the tax relief your employer has added to your pot on your behalf.
What is a defined-benefits pension?
Also known as final salary schemes, defined-benefits pensions are workplace pensions that provide you with an income for life after you retire. How much pension income you will get is based on how many years you worked for your employer and your salary.
What is a final salary pension?
A final salary pension is another way of describing a defined-benefits pension (see above).
Can I have more than one pension?
There is no limit to the number of pensions you can pay into. However, bear in mind that there is an annual allowance which defines how much you can contribute to your pensions overall and still receive tax relief.
How much can I pay into a pension?
If you’re a UK taxpayer you, or you and your employer, can pay up to 100% of your earnings into a pension or pensions, up to an upper limit. For 2020/21 this is £40,000 a year.
How much should I pay into a pension?
The earlier you start saving into a pension, the better, since this gives your money more time to potentially grow in value. Therefore, the closer to your retirement age you are when you start saving, the more you would ideally put in. A rough rule of thumb is to take your age when you first started saving into a pension, halve it, and pay that percentage into your pension[i]. So, for example, if you started saving at 40 you should aim to pay 20% of your salary into your pension, whereas at the age of 20, aim for 10%.
Is it too late to start a pension in my 50s?
It’s never too late to start a pension. Pensions are a tax-efficient way to save since pension tax relief is paid at your highest rate of income tax. So, if you’re a basic rate taxpayer[ii], every £100 you put into your pension will only cost you £80, with the Government effectively adding the extra £20. Also, if you’re still working, your employer should offer you a workplace pension into which they will also match your pension contributions.
Do I have to be working to start a pension?
No, you can have a pension if you’re employed, self-employed, working part-time or not working at all.
What is pension Automatic Enrolment?
Auto Enrolment is a Government initiative which requires all employers to offer all their employees a workplace pension, and make contributions towards their employee’s pension.
Should I join my employer’s workplace pension?
It’s usually a good idea to join a workplace pension scheme, since your employer is obliged to pay contributions towards it as well. It effectively means your employer is giving you money for your retirement – think of it as a pay rise you can spend when you retire!
What are qualifying earnings?
Qualifying earnings are what your pension contributions are usually based on if you contribute to a pension scheme. These usually consist of your salary, bonuses, overtime and sick pay. You can check with your employer to find out specific information about yours.
What happens to my pension if I leave my current employer?
The money from your pension still belongs to you. You can take the benefits when you retire, or take it with you as a lump sum. You can also start a different workplace pension and combine the two. Talk to an independent financial adviser who is regulated by the Financial Conduct Authority before you do this and check what costs may be involved if you do so.
What happens to my pension if I go on maternity leave?
If you’re being paid through your maternity leave, you and your employer will continue to pay into your pension. If you’re not being paid, your employer must continue paying into your pension for the first 26 weeks of your leave.
Can I increase my contribution to a workplace pension?
Yes, you can pay more into your workplace pension up to the annual maximum limit. Your employer should be able to arrange this for you – don’t assume they will match your increased payment, they may have an upper limit. It’s worth checking this first.
I have several pensions, can I put them all in one pot?
Yes, you can combine your pension plans into a single pot. However, it’s worth talking to your pension providers to understand any charges that are involved in doing this. It would be wise to take independent financial advice before you merge your pensions.
What happens to my pension if I pass on before I retire?
If you pass on before you retire, your pension pot is deemed to be outside of your estate so your beneficiaries can access it without having to pay inheritance tax on it.
What happens to my pension when I die?
What happens to your pension is affected by a number of factors including the type of pension you’ve got, whether you have already started drawing from it, and the age at which you die.
At what age can I draw my pension?
You can usually start drawing from your pension at the age of 55, well before you are eligible to receive the State Pension.
Can I have a joint pension?
You can’t have a joint pension with your married partner, pensions are held in separate names. If your partner isn’t working, you can pay into a pension for them or alternatively, a joint-life annuity might suit you.
Can I take all of my pension fund in one go?
Since 2015 you have been able to take all of your pension in a single lump sum at the age of 55. While 25% of it would be tax free, you could still end up with a big tax bill and it could also mean you don’t have enough income in retirement.
Are there any downsides to not consolidating pension pots?
Some people choose to consolidate their pension pots while others choose to keep them separate. There’s no one-size-fits-all advice, only to consider the difference in amount of paperwork and associated costs.
How much do I need to retire?
Every person has different needs, requirements and expectations of retirement so everyone’s ideal retirement figure is different. You can read our Can I afford to retire? article for more advice.
Find out about transferring your pension here.
The information on this page was sourced between June - October 2020 and updated in April 2021. Information on this site does not constitute any form of advice, representation, or arrangement by us and you take full responsibility for making (or refraining from making) any specific investment or other decisions. You should take independent financial advice from an adviser who is registered by the Financial Conduct Authority.