Pensions
Pensions are 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.
Many different tools are 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 income to provide for your retirement.
Single Tier State Pension
The new State Pension is a regular payment from the government that you can claim if you have reached State Pension Age (SPA) on or after 6 April 2016. Other arrangements apply prior to that date.
You’ll be able to get the new State Pension if you are eligible and are:
- a man born on or after 6 April 1951
- a woman born on or after 6 April 1953
If you reached State Pension age before 6 April 2016, you will get the State Pension shown below under the headings Basic State Pension and Additional State Pension.
The full new State Pension is £185.15 per week (2022–23). Your National Insurance record is used to calculate your new State Pension. You will usually need ten qualifying years to get any new State Pension, 35 qualifying years for the full amount.
The amount you get can be higher or lower depending on your National Insurance record.
The Basic State Pension applies to people who reached State Pension Age before 6 April 2016 and who have paid sufficient National Insurance contributions while at work or have been credited with enough contributions.**
The Additional State Pension is referred to as the State Second Pension (S2P); before 6 April 2002, it was known as the State Earnings Related Pension Scheme (SERPS). From 6 April 2002, S2P was reformed to provide a more generous additional State Pension for low and moderate earners, carers, and people with a long-term illness or disability. It is based upon earnings on which standard rate Class 1 National Insurance Contributions are paid or treated as having been paid. The Additional State Pension is not available in respect of self-employed income.
From April 2016, the Basic State Pension and Additional State Pension were combined to offer a simple, single-tier flat rate pension. **
An occupational pension (through an employer’s pension scheme) could be a final salary scheme (referred to as defined benefit) 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 and how well the investments in the scheme perform.
Personal pension schemes (including stakeholder schemes) are also money purchase schemes and are open to everyone. They are especially useful if you are self-employed to top up existing arrangements. From October 2012, all employers now have to offer employees who meet certain criteria automatic enrolment into a workplace pension.
Retirement options comprise a vast array of different products that may be used at retirement to provide benefits, from the traditional form of annuity that provides a regular income stream to flexi-access drawdown that enables lump sum payments to be taken either as a one-off or over a given number of years. Given the complexity and choice all individuals now have, it is important to seek independent financial advice before making any decisions.
State Pensions may not produce the same level of income that you will have been accustomed to whilst working. It is important to start thinking early about how best to build up an additional retirement fund. You are never too young to start a pension, and the longer you delay, the more you will have to pay in to build up a decent fund in later life.
** For those who reached State Pension Age on or after 6 April 2016, these no longer apply.
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