Top Tips on planning your pension
1. Tax relief on contributions
Company pension schemes usually require you to make a regular contribution straight from your pay packet based on a percentage of your salary. The payment is taken before you pay tax on your salary – hence you get tax relief on your pension contributions.
If you have a personal pension you can still get tax relief on contributions. You’ll pay income tax on your earnings before any pension contribution but the pension provider claims tax back from the Government at the basic rate of 20%. This means that for every £80 you save £100 goes into your pension pot. If you pay tax at higher rate, you can claim the difference through your tax return.
2. Moving jobs
If you move jobs you have to stop paying into your old company’s scheme but you will become a “deferred member” and still receive a pension when you retire. Alternatively you can transfer the money you’ve invested into a personal pension or another company scheme – but there will be administrative costs for doing so.
If you’ve moved jobs a lot and think you may have other pension schemes you’re no longer paying into, the Pension Tracing Service (thepensionservice.gov.uk) can help you if you’ve lost track of them.
3. Benefits on retirement
When you reach retirement age you can claim a whole range of benefits from winter fuel payments to discounts on the high street. In Scotland and Wales, over 60s get free bus travel at any time of day although this is restricted to just off-peak travel in England.
Homes with a resident aged over 60 are eligible for a tax-free winter fuel payment to help keep warm, ranging from £100 to £300 per year. Some pensioners may also qualify for a separate cold weather payment.
Also those over pensionable age on a low income can get a pension credit, which provides a guaranteed minimum income of £142.70 a week for single people and £217.90 for couples.
4. State Pension age
State Pension age is the earliest age at which you can start to draw your state pension. You can defer your State Pension and earn either a higher pension when it does start or take a cash lump sum.
Up until 5 April 2010, men’s State Pension age was 65, and women’s 60. But the State Pension age is changing as people are living longer. For women born between 6 April 1950 and 5 December 1953, State Pension age is being increased from 60 to 65. This means that men’s and women’s pension ages will be equal by November 2018.
From December 2018, the State Pension age for everyone will start to rise until it reaches age 66 by October 2020. However, legislation has also now been passed to increase state pension age further to 67 by 2036 and 68 by 2044 – but the Government has announced plans to bring these increases forward.
5. Public sector pensions schemes
People who work in the public sector have typically received more generous pensions in the past than those who work in the private sector.
But public sector pension schemes are changing, with increased contributions and a higher retirement age for many.
From April 2015 (or 2014 for local government schemes), final salary schemes will be replaced by career average schemes. A final salary scheme is better if you’ve promoted through your working life and end your career on a high salary. Career average schemes tend to be better if you reach your peak earnings relatively early and earn less as you near retirement, for example because you work part-time.
However, pension rights built up before April 2015 are fully protected and, if they are final salary schemes, the pension will still be based on pay at retirement.