Not as difficult as we thought

Pension Rules - old & new

When you have worked hard all of your life, saving the money you will need for use in your retirement, your pension is a critical consideration – its value and the way you choose to use the savings are likely to determine just what kind of life you are able to enjoy once you have retired.

How do the new pension rules affect me?

In addition to the changes to the retirement age, there are also changes to the pension schemes themselves – through the application of “new rules” and “old rules”:

Old Rules

  • the old rules apply to men born before the 6th of April 1951 and women born before the 6th of April 1953;
  • to qualify for the full state pension (currently £119.30 a week), you need to have reached the respective state retirement ages for men and women and have at least 30 qualifying years in which you paid National Insurance contributions;
  • men born before 1945 and women born before 1950 need to have made more qualifying National Insurance contributions – 44 years and 39 years respectively for men and women to receive the full state pension;
  • “top ups” may be available for those who do not qualify for the basic state pension or for less than the full amount, based on contributions made by their spouse or civil partner;
  • you do not receive a state pension automatically, you have to apply for it;

New Rules

  • the new rules apply to men born on or after the 6th of April 1951 and women born on or after the 6th of April 1953;
  • the principal changes under the new rules concern qualifying years of National Insurance contributions and the calculation of how much pension you receive;
  • you need to have made at least 10 years of qualifying contributions;
  • the full state pension under the new rules is £155.65 a week, and how much you get depends on your record of National Insurance contributions;
  • calculation of the exact amount to which you are entitled is complicated and you might want to refer to the official pensions website for further details.

Determining how much state pension you might receive after retirement is difficult, but you can get a State Pension Statement which shows how many qualifying years you have paid in National Insurance contributions and a forecast of how much you are likely to get.

You may apply for your pension up to four months before it becomes payable.

Please note that this information is correct as at February 2017

Back to top

Is an Annuity right for you?

An annuity is essentially an insurance product which allows you to convert the savings that have accumulated in your pension pot into a regular, guaranteed income which is payable for the rest of your life – explains a guide published by the Consumers’ Association’s Which Magazine:

  • different annuity providers offer different rates of return, so the amount of income you receive depends on the offered rate;
  • the risk taken by the annuity provider is on how long you live – the longer that is, of course, the more the provider ends up having to pay until your death;
  • by the same token, if you are suffering from a serious, life-threatening illness or condition, the provider is likely to pay less overall, so you may earn an enhanced rate of return on your savings;
  • as explained in more detail in our guide to pension annuities, the rules were changed in April 2015;
  • before that date, a minimum of 75% of your pension pot had to be invested in the purchase of an annuity;
  • since April 2015, you have still had the choice of purchasing an annuity, but now you also have the option of immediately withdrawing the whole of your pension savings or withdrawing the amount in stages (in which case, income tax is payable on 75% of your savings), or choosing a combination of withdrawing part and using the remainder for the purchase of an annuity.

Further reading: Visit our Annuities section and use our free annuity calculator to see how much you can boost your pension income.

Please note that this information is correct as at February 2017

Visit Annuity Section

Back to top

Workplace Pensions

A workplace pension provides a way for you to save for your retirement by making contributions to your pension pot each month. You might also see it described as an occupational, works, company or work-based pension.

A workplace pension is separate from and received in addition to any State Pension for which you qualify:

  • an outline of the typical workplace pension scheme is given on the official government website;
  • in addition to your own contributions, your employer may also choose to make a contribution too;
  • all contributions are deducted automatically from your pay and the amount typically represents a percentage of what you earn – the exact percentage varying from one workplace pension scheme to another;
  • if you have been automatically enrolled into your workplace pension scheme, or voluntarily opted in, there are nevertheless certain minimum contributions – made by yourself and your employer – which need to be made from your “qualifying earnings”;
  • currently (as at February 2017), the percentages are a minimum of 0.8% of your pay on your own part, 1% to be contributed by your employer and a further 0.2% from the government (in the form of income tax relief);
  • these are set to be increased with effect from April 2019 – to a minimum of 4% of your salary to be paid by you, 3% paid by your employer and a further 1% paid by the government;
  • your contributions are deducted automatically by your employer, before tax – so that you don’t pay any tax on your pension contributions – and your payslips show you how much has been deducted, plus the tax relief you have earned;
  • your workplace pension provider must send you a statement each year showing how much is in your pension pot – as reflected in the total contributions paid in by you, your employer and the government;
  • you may also request an estimate of what your pension pot is likely to be worth when you come to make withdrawals.

Back to top

Is a SIPP a good idea?

The acronym SIPP stands for Self-Invested Personal Pension and this may be a useful way of saving for the day you retire by investing in a scheme intended to help your money to grow – in a fund over which you maintain full control.

SIPPs work like this:

  • as with other forms of personal pensions, you contribute a regular sum of money to store up against the time you plan to retire – although the pension provider may also allow you to make one-off lump sum payments into your SIPP;
  • in the case of a SIPP, your pension contributions may be used to invest in a wide range of financial products, such as stocks and shares (listed and unlisted), unit trusts, investment trusts and property and land insurance bonds;
  • when it comes to drawing your pension, the funds available are dependent upon the amount you have paid in by way of contributions, the growth in the value of investments made on your behalf by the pension provider and the charges that are made for the management of your pension fund;
  • one of the advantages of a SIPP over, say, a workplace pension scheme is that it is entirely flexible and portable – if you change jobs, your SIPP is entirely unaffected, since you may take it with you and continue to make your agreed contributions as usual;
  • it is your personal pension plan, and although there is no obligation to do so, your employer may decide to contribute to the SIPP you have set up – one of the employer’s conditions may be that you “match” the amount of contributions being made;
  • although you don’t need to have stopped work or retired in order to withdraw the benefits from your SIPP, current rules mean that you must be at least 55 years of age;

If you want to find out more about SIPPs, a user-friendly guide is published by the government-sponsored Pensions Advisory Service.

Back to top

How do I find a lost pension?

With the increasing number of different types of pension scheme and the propensity for more people to change jobs more frequently – and join different pension schemes as they move – it is relatively easy to lose track of just how many pensions you might have contributed to during your working life.

Recognising this, the government runs a free, online Pension Tracing Service.

This is designed to help you track down the contact details of those employers and pension scheme providers, so that you may make your enquiries about any potential scheme from which you may benefit – the tracing service itself does not tell you whether you ever contributed to any workplace or personal pension plan, neither does it tell you the current value of any such pension.

To begin tracing an employer or pension fund provider, you need the following information:

  • any current and previous names by which it was known;
  • the type of business a previous employer ran;
  • whether it has changed address; and
  • the years during which you belonged to the scheme.

Back to top

Pension Pot Options

Following the introduction of new pension rules – for men born after the 6th of April 1951 and women born after the 6th of April 1953 – there are effectively six different ways you may access and withdraw the proceeds of a defined contribution pension pot:

  • do nothing – you don’t have to take the funds out of your pension fund when you reach the agreed retirement age, but may leave the money where it is and have more to enjoy over a shorter period of retirement or even see some growth in the value of your pension pot;
  • buy an annuity – just as under the old pension rules, you may take up to 25% of your pension pot in the form of a tax free lump sum and invest the remaining 75% or more in an annuity which gives you a guaranteed income for the remainder of your life (you are liable for income tax on annuity income);
  • invest the proceeds – instead of opting for the guaranteed income of an annuity, you might instead choose to invest all or part of your pension pot in order to earn an indeterminate and variable income stream;
  • staged cash withdrawals – you might decide simply to withdraw the cash from your pension pot, in smaller amounts, over a period of time, enjoying tax-free benefits on the first 25% of each withdrawal;
  • withdraw the whole amount in cash – the new rules allow you to withdraw the entire value of your pension fund in one go, paying no tax on the first 25% of the proceeds and your personal rate of income tax on the remaining 75%; or
  • mix and match – depending on the size of your pension pot, you might opt for a combination of these different choices.

Please note that this information is correct as at February 2017

Back to top

Pensions Glossary

sun life over 50 life insurance

Discussion about pensions may often appear overly complicated and involved, not least because of the number of unfamiliar technical terms that are widely used.

The following jargon-busting glossary is our quick guide to some of the terms you are most likely to encounter:

State Pension

This is the pension to which you are entitled if you have made National Insurance contributions for a prescribed, minimum number of years;

Although the earliest you may qualify for payments of a State Pension is 65 (60 for women), both of these are being raised in the very near future;

Personal or Private Pensions

Just as the term suggests, this is a private pension scheme, entirely separate from your National Insurance contributions and the State Pension which follows;

Private or personal pensions are tax-free money purchase plans which you may set up independently of any scheme operated by your employer

Workplace or Company Pensions

Also called occupational pensions, these are run by your employer as part of the overall remuneration package you receive for the job;

Both you and your employer contribute to a pension fund which becomes available for withdrawal at an agreed retirement age and the government also contributes to the benefits by way of tax relief on payments you make to your workplace pension scheme

Final Salary Pension Schemes

Just as the term suggests, this refers to a once quite widespread type of pension scheme in which the amount of your pension is related to the final salary you were earning immediately before you took retirement;

Although many are still in payment, it is increasingly rare for those in work to be offered any such scheme – simply because they are so expensive for pension funds to provide.

Money Purchase Pension Plans

These do not rely upon your final salary at work, but instead relate directly to the contributions made to a pension pot by you and your employer;

For that reason, they are also known as defined contribution plans;

The amount of pension you eventually receive is determined by the total amount that has been contributed and the performance of the investments made by the pension fund managers

Stakeholder Pension Plans

Stakeholder pensions are a specific variety of personal pension plan, to which you make your own private contributions;

With a stakeholder scheme, however, there are government regulations limiting the amount of fees and charges that may be raised by the pension fund managers and other rules governing security of and access to the fund

Pension Release

Also known as pension “unlocking” this typically refers to attempts to access and withdraw funds from your pension pot before you reach the age of 55;

55 is the age at which you are legally entitled to access your pension funds, although the rules of a particular workplace, personal or stakeholder scheme may set the qualifying age somewhat later – say, 60 or 65;

Although methods exist for accessing the future value of your pension fund before you reach the age of 55, there are frequent warnings – not least from the financial services regulator, the Financial Conduct Authority (FCA) - about the costs you may face in early release of the funds, including your tax liabilities. That is why seeking specialist pensions advice is always recommended.

Is equity release a good idea?

Use the calculator to see how much cash you could release from your home

Have you switched energy supplier yet?

Switching your energy supplier has never been easier

Is private health insurance expensive?

It could be more affordable than you think

Our Trusted Partners

over 50 life insurance    funeral plans   equity release   health insurance      best energy deals   over 50s car insurance  making a Will