It’s no secret that, as a nation, less than half of us have some form of pension provision and with an aging population this is incredibly worrying to the state. Not only should this be a worry for the state but it should also be worry for individuals too.
Many people feel put off pensions simply due to a lack of understanding however, in truth pensions are quite easy to understand with the right advice and guidance.
Again, there is far too much information to detail here on a website and information shouldn’t be a substitute for tailored advice which takes into account your current situation as well as your hopes and aspirations for retirement.
As a brief overview there are two very different types of pension scheme, these are either occupational or individual pension arrangements such as personal pensions and stakeholder pensions.
Occupational schemes, or company pension schemes, are usually of two types, either Defined Benefit (Final Salary) or Defined Contribution (Money Purchase) and both usually require the employer to contribute.
Personal Pension schemes (launched in 1988) are unlike occupational schemes in that they are a contract between the individual and an insurance company.
Individuals can save as much as they want towards a pension each year however, there is a limit on the amount that will qualify for tax relief which is known as the Annual Allowance. The Annual Allowance applies to all pension savings in a registered pension scheme and all overseas pension schemes as long as the individual or the employer qualifies for UK tax relief on those pension savings. It is possible to save more than this amount into a pension scheme however, there may be a tax charge to pay on the interest.
What about Auto Enrolment?
Currently not every employer offers a pension scheme to their workforce however, under a new system, auto-enrolment, this is all set to change.
Auto-enrolment began being phased in from late 2012 for companies that have more than 250 employees. Companies with fewer employees are being phased in after this. Further information can be found at The Pensions Regulator
The aim of auto-enrolment is to ‘bridge the pension gap’ that the government envisages will happen when so many of us today reach retirement. If we’re not saving enough now for retirement then it will be difficult for many to continue a standard of living during retirement and auto-enrolment aims to change that.
Those eligible for auto-enrolment should;
- Be at least 22 years old but under state pension age
- Earn more than £10,000 a year (2014/15 tax year)
- Work in the UK
- And not already in a workplace pension scheme
National Employment Savings Trust (NEST)
Aimed at low to moderate earners, the government have created a new pension scheme called NEST. Individuals will be enrolled into NEST if their employer doesn’t have an existing pension scheme or decides not to use the pension scheme from a provider.
It is possible to opt out however, you’ll miss out on your employer’s contribution as well as the tax relief and opting out can only be done once you have become a member of the scheme. If you opt out during the first month of the scheme any payments made will be refunded to you however if you opt out further in to the scheme membership then any contributions made will remain in the pension pot. An individual can re-join the scheme at any time.
Need more advice on Pensions and your options?
Then call the Simply Financial Advice team on 01332 223888 or email us at email@example.com – Or complete the form below and a member of our team will contact you shortly.