As we enter a new tax year, people will be making resolutions on how to get the most from their retirement planning. So, in a two-part series, we’re looking at some of the most popular pension questions so you can get a head start with your planning.
This article isn’t personal advice. Pension and tax rules can change, and benefits depend on your circumstances. You can normally access the money in a pension from age 55 (rising to 57 in 2028). Scottish taxpayers have different tax rates and bands. If you’re not sure if an action is right for you, ask for financial advice.
How do I trace my lost pensions?
If you think you’ve lost an old pension, then give the government’s Pension Tracing Helpline a call. All you need is the name of your old employer or the pension provider. It won’t tell you if you have a pension with them, but it can give you the right contact details to go find out. You could end up finding a pension worth thousands.
Once you’ve tracked down your old pensions you may decide to consolidate them, so you can see everything in one place. But before you do that make sure you don’t incur any exit fees or potentially miss out on valuable benefits like guaranteed annuity rates.
What happens to my pension when I leave a workplace?
Your workplace pension belongs to you. So, when you leave a workplace, your pension stays invested and you can take an income from it after you reach pension age, that’s why it’s so important to keep track of. You may be able to keep paying into the pension after you have left but this won’t happen automatically – you will need to speak to your provider.
If you’re moving to another job, then you will likely be auto enrolled into a new workplace pension with them. This new workplace pension will normally start benefitting from an employer contribution as well as your own.
How much do I need in retirement?
The answer is – it depends.
Some people will want a retirement filled with far flung travel destinations while others want something a bit more modest. Some will have to factor housing costs into their plans whereas others will have paid off the mortgage.
All these things have a big impact on how much you need. It’s important to take the time to think about this so you have some sense of how much you will need each year. You can then use online pension calculators to give you an idea of what you are on track for, giving you the time to fill in any gaps if needed.
How does tax relief work?
Tax relief is a great incentive for contributing to your pension. You get tax relief at your marginal rate so a £100 pension contribution only actually costs a basic rate taxpayer £80. For a higher rate taxpayer, it’s as little as £60 and for an additional rate taxpayer it’s as little as £55. This could be lower if someone contributes via salary sacrifice.
If you’re a basic rate taxpayer then you should receive the right amount of tax relief on your contributions automatically, but if you pay tax at a higher rate, you may need to claim any higher rates of relief. It all depends on how your contributions are made.
In a salary sacrifice arrangement or what’s known as a net pay arrangement, you should already be getting the right amount of tax relief. This is because your pension contribution is deducted from your salary before income tax is calculated. This means you only pay tax on what’s left so will get full tax relief immediately.
However, if your contributions are made via ‘relief at source’, then things work differently, with contributions deducted from your salary after tax. The employer takes 80% of the contribution value from the employee’s salary, after tax, and pays this to the pension provider. The pension provider then reclaims the basic rate tax relief of 20% from HMRC. So, if you’re entitled to tax relief at a higher rate, you need to claim the extra yourself, normally via your tax return. If you’re unsure, it’s worth checking with your employer how your contributions are made.
You can backdate claims for up to four years and if you don’t fill out self-assessment forms you can claim the relief online through the gov.uk website or via post.
Can I change my workplace default fund?
A default fund is the fund your workplace pension provider automatically invests your pension contributions into. This can work well for people who may not know where they would start. But don’t forget, you can move out of your workplace default fund if you want to.
Make sure that whatever you choose to invest in is well diversified across different asset classes and geographies and that you aren’t paying unnecessarily high fees. Investments and any income from them will rise and fall in value, so you could get back less than you invest.
For those people looking for a hassle-free alternative to their workplace pension default, they could consider ready-made investments. These are a combination of funds managed by experts to give people an easy way to invest.
For investors wanting to build their own portfolio, they can explore our HL Building Block range, or our Wealth Shortlist of funds we believe have the greatest performance potential.