What is a Pension and Pension Questions
The author of this blog is Ashley Hull.
‘59% of working adults said their lack of understanding of the (pension) system puts them off saving more into a pension.’
‘Fewer than 50% of people in the UK are saving enough for retirement.’
Pension Definition
A tax efficient way of saving for your retirement. Imagine it as a long-term savings account.
What Different Types of Pensions Are There?
Do I receive tax relief on my contributions?
- If you make Personal Pension contributions, you receive tax relief on these – the idea being you do not pay the tax on money that goes into a pension
Example
- Person Earning £35,000 per year (Basic Rate Taxpayer) contributes £100 per month personally. This will receive an additional £25 and be added into the pension.
How is my pension invested?
- Pension can be invested into a wide variety of options
- Cash & Cash Funds
- Investment Funds
- These can be sector specific i.e., North American Equities or Global Funds
- Property
- Via Funds
- Real Estate Investment Trusts
- Direct Commercial Property Holdings
- Shares
- Companies that make up the Stock Exchanges
How do I Withdraw my pension (Workplace / Defined Contribution / Personal Pension)?
- Tax Free Cash and Drawdown
- You receive 25% of the value as a tax-free cash payment
- The rest is used to provide you with income
- You can choose how much income you receive
- These payments are added to your income tax liability
- Take It All in One
- 25% of the withdrawal will be tax free
- The remaining 75% will be added to your income tax liability
- Buy an Annuity
- This is where you give your pension to a Life Insurance Company who then pay you an income for life
What Happens to my Pension when I Die?
- Workplace / Defined Contribution / Personal Pension
- You have the choice of nominating beneficiaries who will receive the pension
- It can be a great planning tool to pass on money to partners, children, grandchildren etc.
- Check if your pension offers Dependents Drawdown – otherwise there could be some avoidable tax consequences for your chosen recipients
- Defined Benefit Pension
- This is scheme specific but usually 50% of the income will be paid to a spouse / dependent beneficiary and children are usually included
If you would like to discuss your financial goals further or another financial planning matter please get in touch with Ashley Hull, Ashley.hull@beaufortfinancial.co.uk or via mobile: 07741 242151.