Have you ever wondered how many pensions you an have !
Well, quite simply you can contribute to as many pensions as you wish.
However though, most people think they can only contribute to one pension at a time.
There is no limit !
You could be paying into a workplace Defined Contribution (DC) – through he introduction of Auto enrolment. Plus you could make contributions into a private pension or Self-invested pension plan (SIPP) as well.
Or you may be a member of a defined benefit / CARE pension through your workplace (such as Teacher / NHS / local authority etc). But you are making separate contributions to a private pension to boost your pension pots.
So you may unknowingly have a DB and a DC pension at the same time.
Most people will automatically be enrolled into a workplace pension when they join that employment.
You may unknowingly have numerous pensions pots sitting there in the background. They are known as deferred as you may no longer be contributing to them.
In the past, people had so called jobs for life. Now people more employment every few years. So you may end up with several pensions across numerous providers.
Defined benefit:
Is a defined benefit paid by sponsoring employer based on length of service, salary and accrual. Which pays income for life or to a spouse. With the risk borne by the employer or trustees running that scheme.
Defined Contribution:
Whereby you and your employer make contributions, toped up with tax-relief from HMRC.
In that you buy units in a fund or collection of funds. Which gives up and down on a daily basis. So the pot has a collective valuation.
Upon accessing in later years, you then access a product such as annuity, drawdown or a series of lump sums.
So how much can I contribute ?
Everyone has something called the Annual Allowance (AA).
Currently set at £ 60,000 per tax- year, or a lower amount of your salary if lower.
So, if you are earning £ 30K as salary you can contribute up to that limit each tax year.
If you are lucky to earning a higher salary, you have the ability to use unused allowances from your 3 previous years if you can afford it.
So check with your current provider about any unused allowances or limits that you have remaining.
Get some free money !
If you are paying into a workplace (auto enrolment) pension. Your should pay a minimum amount of 4%, your employer will add 3%, plus the government will add 1% as tax-relief.
So across the board, a minimum contribution of 8%.
Some employers will offer more attractive schemes to entice employees.
My employer allows me to contribute 5% and then will add 10% on a monthly basis through payroll.
AE Thresholds:
Earnings trigger for AE: £ 10,000 salary per year.
Lower limit of qualifying earnings: £ 6,240 per year
Upper limit of qualifying limits: £ 50,270
So qualifying earnings bands: contributions calculated on earnings between £ 6,240 and £ 50,270
See my blog post about AE pensions: https://moneyminted.co.uk/what-is-the-pensions-annual-allowance
If you are considering increasing your contributions through your workplace scheme. Check with HR or directly with the pension provider to see if you can increase contributions.
Some employers offer contributions through salary sacrifice.
So in effect your gross pay is reduced by your pension contributions. So you end up paying less tax and NI on your salary.
What about private pensions !
If you are making contributing into a private pension or SIPP.
You are usually making contributing on a monthly basis through direct debit or standing order.
If you are contributing £ 100 per month as a basic rate tax-payer. Your pension provider provider will claim tax-relief (free money) on your behalf.
So you should receive £ 25 the following month into your pension plan. If you are a basic rate tax-payer.
If you are a higher rate tax-payer, you can reclaim through gov.uk or self-assessment forms.
https://www.gov.uk/guidance/claim-tax-relief-on-your-private-pension-payments
BE AWARE:
If you are contributing into a pension scheme. You money may be locked in for numerous years.
At present the earliest you can access is age 55 (unless you have serous ill-health or protected age).
However, this will increase to the 57 with effect from 6th April 2028.
So if you are going to contribute, consider that you cannot access at short notice.
What should I do if I have numerous old schemes !
You should ideally review them and consider what benefits and options you have with them in future.
Most workplace AE schemes and recent private pensions are relatively simple. In that they are worth a specific amount each day.
But old schemes set up in the 1980’s and 90’s. Will have some special features, or legacy benefits.
Examples:
- If you buy an annuity with existing provider, they may offer a better rate of guarantee (GAR) to buy annuity with them. But, if you go elsewhere you will lose that enhanced rate.
- Could be with-profits – in that you receive an annual bonus, but on maturity you will receive a terminal bonus. Which could increase your pot value substantially.
- A small number of schemes, may offer enhanced tax free cash, so more than 25%
You should also review fees, charges, how they funds are performing and the selected retirement date (SRD).
It may be an idea to transfer and consolidate them to simplify.
But check for the following points:
- will they let you – no reason why not
- do they charge exit fees or penalties,
- do you lose so called special features
- how long will transfer take to complete
- what annual management fees are you being charged
You can transfer a pension at any age. It should a simple process to complete.
There is no need requirement for financial advice. Unless you have a pot over £ 30k which has special features, guarantees or is DB and move it elsewhere.
You can do it yourself, by contacting your existing pension providers.
The restriction of accessing at age 55, relates to buying a product and taking money out. It doesn’t relate to simply transferring a pension pot to another provider. You can do a transfer at anytime age.
See blog post for further information:
https://moneyminted.co.uk/how-to-consolidate-your-pensions
Can you manage the admin !
It may be possible that you can look after you’re pensions yourself.
Especially if you only have 1 or 2.
But what if you have several small pots with numerous providers across serval different employers.
Do you have a pile of paperwork covering annual statements. Or do you have numerous logins across several apps or online accounts.
Are you happy managing them and are you in control.
I speak to people on daily basis through employment,that have numerous pensions which they struggle to manage the admin of.
So could you take some steps to consolidate and simplify.
You may even have some missing pensions from old employers. Which you have failed to update from moving house, getting married, changed name etc.
So compile a simple spreadsheet recording your exact plans, values etc, selected retirement dates. By doing so, you financial decisions will be easier to make in layer years when accessing.
If you do have some missing pensions, use the feel tool called the Pension Tracing Service to assist finding them.
https://www.gov.uk/find-pension-contact-details
Finally:
If you are going to make contributions across several pensions.
Use the free calculators and illustration tools on your providers website.
To see what pot value may be at set dates in future. Based upon future contributions and investment returns.
The idea of retirement or accessing may be many years down the road. But make a conscious decision to get involved with your pensions.
Through the power of compounding, she simple steps taken now. Could have some substantial rewards and benefits in later life ahead of accessing.
Remember:
If you found this blog post useful and informative. Check out my other posts on savings, investing, pensions and investment books that I recommend to improve your financial knowledge.
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