Pensions FAQs

Here are some general questions that may help you with pensions. The information below is based on our understanding, as at March 2014 of current taxation, legislation and HM Revenue & Customs practice, all of which may change without notice. The impact of taxation (and any tax reliefs) depends on individual circumstances.

  • The state retirement age is currently 65 for men born before 6 December 1953, and for women born after 5 April 1950 but before 6 December 1953, is between 60 and 65. For women, this will rise gradually to equalise with men by December 2018. The state pension age will then rise to 66 for both men and women by October 2020.

    You can find out your state retirement date using the state pension age calculator on the Directgov website.

  • This is a government scheme that provides an extra pension, depending on the amount you earn and the additional national insurance contributions you have made. This scheme replaced the state earnings related pension scheme (SERPS). Self-employed people will not be accruing state second pension benefits for the time they are self-employed. Find out more about the state second pension.

  • An individual pension is your own private pension that you can pay into as you move from job to job. You can have one in addition to a company pension scheme. Essentially, you pay money into your plan and choose where to invest it from a range of funds. These are managed on your behalf and the accumulated fund value in your pension is normally used to buy an annuity (which pays a regular income for life when you retire).

    Find out about individual pensions or you can find out about the tax benefits of saving in a pension below.

  • Stakeholder pensions are similar to personal pensions. Providers cannot charge more than 1.5% of the fund value each year in the first 10 years, after which the maximum annual charge is 1%. Minimum contributions are low and you can stop and start them when you want.

  • SIPPs are specialist products that allow you more flexibility over where your money is invested. They suit people who want to make their own investment decisions and are comfortable with taking on the higher associated risk.

    You can choose to invest directly in anything from individual shares to property, picking the investments yourself rather than having your provider do this for you. Charges on SIPPs tend to be higher than on personal pensions.

    SIPPs are a complex area and you should seek advice from your provider or a financial adviser if you are interested in this type of pension. There may be a charge for financial advice.

  • RAPs were the predecessors of personal pensions. They were offered at the time to the self-employed and the employed who didn't have a company pension scheme. Their main purpose was to create a fund that could be used on retirement to purchase an annuity (a taxable income for life). No new RAPs have been issued since 30 June 1988, but people continue to pay contributions to existing contracts.

  • These are schemes organised by a company or organisation for its employees. Employers generally make contributions.

    There are two types of company schemes, final salary and money purchase. If you don't join your employer's scheme you'll miss out on any contributions your employer may make. If you need more information please check with your employer.

    Find out more about company pensions.

  • A final salary scheme is also known as a defined benefit pension scheme. This provides a pension that is normally based on your final salary and how long you've been in the scheme. For example, an employer may offer 1/60 of your final salary for every year you've worked there.

  • A money purchase scheme is also known as a defined contribution pension scheme. You make contributions each month and the pension you receive is based on factors such as contributions paid, returns on investments, annuity rates and charges at the time you take your benefits. Your employer may also make contributions depending on the scheme's rules.

  • Individual pensions

    Subject to limits, generally for every £80 you pay into your personal pension, the government will add £20 tax relief. If you pay above the basic rate of tax, you can also claim additional tax relief through your tax self-assessment form. Read more about tax relief, or try our tax relief calculator.

    Company pensions

    If you're in a company pension your contribution is paid before tax is taken from you earnings. This means you receive immediate tax relief at the highest rate applicable (subject to government limits). So for a basic rate tax payer, for every £100 you pay into your pension it could cost you £80 as the tax that is normally paid to the taxman of £20 goes to your pension instead. This will be higher if you are an additional/high rate tax payer. Read more about tax relief.

    Group personal pensions

    Group personal pensions are sometimes categorised or referred to as a company pension schemes because they are set up by employers. However, they are personal pensions and so the tax relief is applied as for an individual pension.

  • Yes there are. Tax relief is subject to the annual allowance, and is limited to 100% of your earnings or £3,600, whichever is the higher. Any contribution above this would not receive tax relief. Note tax relief only applies up to age 75.

    If you don't pay tax, you can still benefit from tax relief on contributions you make, up to a limit of £2,880. The tax man will also add 20% to make the total £3,600.

  • The government limits the amount that can be paid each year, to all your pensions, before incurring a tax charge. This is called the Annual Allowance. If you exceed this amount, (currently £50,000 in 2013/14 and £40,000 in 2014/15), you may be liable to a tax charge and must tell HMRC through a tax return.

    You may be able to 'carry forward' unused allowance from the last three years to increase your limit for the current year.

    Your Annual Allowance includes all contributions from you, an employer, any third party and increases in the value of any salary related pension benefits you may have.

    If you think you are affected by this limit you can get more information from the HMRC website at Alternatively, you may wish to speak to a financial adviser, for which you may be charged.

  • Pensions in payment are taxed as earned income.

    You can usually take up to 25% of your pension fund as a tax-free lump sum when you take your benefits, subject to your scheme rules and so long as your total pension savings are within the lifetime allowance.

  • The government limits the amount you can build up in all your pension plans before incurring a tax charge. This is called the Lifetime Allowance. If you exceed this amount, (currently £1.25m in 2014/15), a tax charge may be payable on the excess.

    If you think you are affected by this limit you can get more information from the HMRC website at Alternatively, you may wish to speak to a financial adviser, for which you may be charged.

  • If you don't pay tax you can still contribute to a pension. There is no limit to how much you can put into a pension, but there are limits on how much tax relief you can get on your contributions. You can pay up £2,880 a year and receive 20% tax relief bringing it to £3,600.

  • You may be able to combine your different pensions into one overall fund to maximise the potential benefits you could get. There will be an impact in doing this and it may not be in your best interests to transfer so we recommend you speak to a financial adviser first.

    Combining pensions can depend on the type of schemes you have. Ask if you are able to combine the various funds you have when getting quotations.

  • Additional voluntary contributions (AVCs) are non-compulsory top up payments made by a member of a company pension scheme to boost retirement benefits. You pay into a scheme run by your employer who takes these contributions normally direct from your pay. It can sometimes be called an in-house AVC.