Workplace Pensions are actually quite simple and they apply to you if you are employed, are between certain ages (currently 22 and State Pension Age) and earn above a certain amount of money (currently £10,000 for the 17/18 tax year).
Every time you pay into a pension, so does your employer, and so does the Government via tax relief. A Workplace Pension should, therefore, be a better way to save for later in life than putting money in the bank!
If you work and are eligible for a Workplace Pension you will automatically be put into the scheme unless you tell your employer that you want to opt out. This is called “Auto-Enrolment”. It’s therefore important to read any letters you get from your employer so you don’t miss out on your choices.
The amount that you need to pay into a Workplace Pension is set out automatically with rates going up over the next few years so more money will be taken from your pay, and more money will be put in by your company unless you tell your employer to stop.
But less money in your pay packet in return for a pension is not necessarily bad news. Your employer has to choose a reputable pension provider who will invest the money on your behalf, and these investment returns will be tax free! You will have to wait until you are at least 55 to get the cash out but in the mean time your money will be invested and should increase in value over time.
But why is saving even important? Until recently many people retired in their 50’s or 60’s and could be expected to live another 10 or 20 years. Now, with medical advances meaning that we live long, we could be retired from work for almost as many years as we actually worked. Let’s think of this as having lots of “gap years” at the end of your life. If you want to enjoy these you are going to need a lot of money saved up. The earlier you save, the more time your money has to earn interest and the larger your pile of cash will be when it’s time to kick back and have fun.
If you are about to be “Auto-Enrolled” it’s important that you understand what will happen to your take home pay when it happens. Some people might be shocked by the drop in their monthly income and decide to opt out after all, which may not be the best thing to do in the long term. If you have any questions about the pension you are being auto enrolled into the first port of call is your employer who will be happy to help, although they can not give you advice on whether to join or not.
There is also loads of info here.
Quite simply, pensions are payments that you might get after a certain age. Claiming a pension used to depend on you giving up work, but with new rules introduced over the past few years you don’t have to finish work to draw a pension and you can even finish work and keep saving!
But of course the money doesn’t appear from nowhere. You gotta put in to get out! There are four main types of pension in the U.K. Check out the links below to see how they work!
- The State Pension
- Gold Plated Pensions (also called Final Salary or Defined Benefit)
- Workplace Pensions (these can be Money Purchase or Defined Contribution or, for the lucky few, Gold Plated – see above); and
- Personal Pensions (also called Money Purchase or Defined Contribution)
Ah, the State Pension. Never has any payment from the Government been shrouded in as much myth and misunderstanding. To be fair, this is due to the complexity of the whole thing and I completely sympathise with everyone who has ever uttered the words “I won’t be getting anything when I retire”, “It’s unfair that my pension has been taken from me” or “I was planning on retiring at 60 and now I can’t”. I mean, who was to know that things would change? And who knew the rules anyway?
Whatever your politics, let’s put this out there and accept that the current and previous Governments have not won any prizes for making the State Pension clear and easy to understand. Let’s face it, they have had wars and the NHS to deal with, as well as divorcing us from Europe, sorting their own complex expenses out and working out whose turn it is next to go on “Strictly”. Your little pension has hardly been the most exciting thing on the agenda – but it should have been, as one of the main results of creating the NHS is that we’re all expected to live longer and so the cost of being retired just keeps going up and up.
Anyhow, let’s leave politics out of it for a moment and focus on the facts which matter to you.
Here’s a first lesson in what you need to know about the State Pension…
- Simply put, the State Pension is a payment made by the Government to people over a certain age, who qualify. I’m not going to go into huge detail here – you can visit https://www.gov.uk/check-state-pension for that, including a personal projection of your own pension which is pretty cool and worth a look – but broadly speaking, you hit a certain age and you get a payment from the state.
- There are two types of State Pension in the UK. The Basic State Pension, which applies to men born before 6 April 1951 and women born before 6 April 1953, and the New State Pension, for everyone else. Which will you get?
- The current amount of Basic State Pension (i.e. paid to people who have already retired) varies depending on how much National Insurance that person has paid. The maximum amount anyone can get, however, is £122.30 per week.
- The New State Pension is a bit higher at £159.55 per week, which works out at £8,296.60. Not enough to live on by most people’s standards.
- The State Pension is different to a workplace pension or personal pension. If you have one (or more) of these other pensions then this will be on top of what you get from the government. More about this later.
- Now for the controversial one, the age at which your State Pension starts to be paid depends on when you were born. For some people this age has been increased and unfortunately, some people didn’t think that they were told about the change quickly enough. The good news is that these people (including a group called WASPI who are pretty active on the twitter) have been very vocal about how unhappy they are and there is now a tool on the internet which tells you exactly when you will get your State Pension. Try it! It’s here https://www.gov.uk/state-pension-age
Any questions let me know. There is much more to follow….