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Pensions
Rebecca Yansen joins us to explain our pension options.
Podcast approved by The Openwork Partnership on 02/02/2025
When should you start putting money into your pension?
I always tell people ‘yesterday!’ But seriously, it should be sooner rather than later. When you’re putting money away for retirement, the more time you have the better – because you’re allowing compound interest to really work its magic.
It basically allows your money to increase. Compound interest is interest on top of your interest. It creates a snowball effect where your investments grow.
Also, because of government tax relief, not paying into a pension essentially means you’re missing out on free money. If you have an employer who’s matching your contributions, that adds up, and you’re also getting tax relief on the contributions.
Is it too late to start a pension?
It’s never really too late to start saving and investing. With pensions, however, the government only pays tax relief up to age 75. As long as you’re under age 75, then, it’s not too late to start and benefit from a pension.
What are my pension options? Are there different types of pension?
There are two different main types of pensions. The first is Defined Benefit, which is where you receive a salary every year in retirement – it’s essentially a promise from your employer.
Most people, however, will have the other type of pension, which is a Defined Contribution pension. If you’re setting something up yourself, it will be Defined Contribution. You save, put away money every month or on a less regular basis. It’s invested, and at the end of it, you’ll hopefully have a big pot of money.
These can be set up by an employer as a workplace pension. If you set it up by yourself, it’s called a private pension. For most people, a personal private pension will suffice. But if you’re someone who has more specious investment needs, a SIPP – a self-invested personal pension – could also be an option.
A SIPP just allows a much wider range of investments, such as commercial property, which you won’t get in a standard personal private pension.
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Can you combine pension pots? Are there costs involved here?
Yes, you can combine pension pots. Combining them is a good way to keep things efficient and easy to monitor as it’s all in one place.
There could be exit costs from the scheme you’re transferring away from. You would have to check this with the individual pension scheme. A financial advisor can also help assess the costs and ascertain if you’d be better off keeping the pension where it is or moving it. There may not be any costs if the scheme allows you to transfer away with no exit fees.
Combining pension pots is something you can do with a financial advisor, or you can do it by yourself. There are resources out there that allow you to combine your pension pots into one place.
How much can I put in a pension?
Technically, you can pay in as much as you want, but there is a limit called your annual allowance, which is the maximum you’ll get tax relief on. That’s capped at £60,000 a year or 100% of your income – whichever is lower.
If you haven’t maxed out the limit in previous years, you can carry that allowance back for the past three years, providing your income is at that same amount you wish to contribute.
There is a caveat with this, though. If you are a high earner with a salary over £260,000 a year, you will fall into the ‘tapered annual allowance’. Here, for every £2 you earn over £260,000, you will lose £1 from your annual allowance, meaning anyone with an income above £360,000 a year will only have an annual allowance of £10,000.
Also, there is another caveat. If you have already flexibly accessed your Defined Contribution pension (not a Defined Benefit pension), you would have triggered the money purchase annual allowance, meaning your annual allowance is again just £10,000 going forward.
It’s a bit convoluted, but the way to remember it is that if you haven’t flexibly accessed your pension and you’re earning less than £260,000 a year, you can put £60,000 in your pension each year – or 100% of your income, whichever is lower [information correct at the time of recording in January 2025].
Can I review my pension plan at any time?
Yes. You can review it pretty much at any point, but you can’t access it until age 55 – and that’s changing to 57 in April 2028. You can review it, see what’s going on, look at the growth and what it’s invested in at any point.
What costs are involved in setting up a pension?
It really depends. There aren’t usually any set up costs per se, but there would be costs on the platform where the pension is held. That is usually a percentage of the money invested. There can also be a charge from the fund that’s being invested in.
What happens to my pension when I die?
It’s not a nice subject to talk about, but up until the last budget in autumn 2024, pensions were outside the scope for inheritance tax. That meant that if you passed away under the age of 75, your pension could be inherited free of tax.
This is due to change in 2027. From then, if you pass away even under age 75, the pension will be liable for inheritance tax. If you pass away above age 75, the people inheriting it will also be taxed at their marginal rate when accessing that pension income.
How can a financial advisor help here? Have you got anything else you’d like to add?
A financial advisor will make the entire process easier. There are a lot of moving parts and complexities, and an advisor will simplify everything for anyone who needs help in this area.
We can also help you select the right investments based on your attitude to risk. We really streamline your investment goals and objectives and help you reach those, while making things a lot easier and less complex.
Essentially we provide expert guidance and advice, putting a plan together to help meet your investment and retirement goals. We make the process of getting there a lot simpler.
The value of pensions & investments and any income from them can fall as well as rise. You may not get back the amount originally invested.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
Approved by The Openwork Partnership on 02/02/2025
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
Pension tracing services are not regulated by the Financial Conduct Authority.
