Learn about pensions

Pensions can be a good way to support your future financial requirements.
They can fit in with changing working habits and lifestyle needs later on in life.

Approaching retirement graphs

Some things to think about

They’re tax efficient
You usually get tax relief on every payment you make but there are limits to how much you can put into a pension each tax year.

Funds to suit you
Payments into a pension are invested in a choice of funds to suit your circumstances and risk attitude.

Your money, your choice
A pension is a means to support you later on in life and you have choices of how you want to take money from it.

A pension is simply a way of putting money aside for when you retire. The money you put in is invested and builds up in a pot, so later on in life you can then access this. At the time you are able to take money from your pension pot, the first 25% will usually be tax-free with the remainder being taxed as income.

Just like any other investments, the value of your pot could go down as well as up so you might not get back what you put in. You would need to keep track of how your pension is performing and make changes to suit you.

Tax and reliefs will depend on your individual circumstances and tax rules can also change.

What is a pension

Here are some of the different types of pensions

Workplace pensions

Workplace pension schemes help employees save for their retirement and are set up by an employer or organisations.

Employers are required to automatically enrol employees onto workplace pension schemes if they're not already in one which meets certain standards.

You'll normally need to pay a minimum amount to the scheme and your employer may also top this up which will help boost your pension pot. See our page on workplace pensions for more information.

Personal pensions

You can still have a pension if you don’t work, are self employed or your employer doesn’t have a workplace pension. You can set these up yourself or through a financial adviser.

There are different types of personal pensions available from a number of providers and some are quite straightforward - you make the payments and have some control over where to invest the payments.

State pension

The State Pension is a regular payment that you could receive from the government when you reach State Pension age. The age and the amount you receive depends on when you were born and the amount of National Insurance contributions you've paid. Check your State Pension age on the gov.uk website.

What's good about pensions

  • The money you pay into your pension usually attracts tax relief and this can be at your highest rate.
  • Your pension pot grows free of tax until you’re ready to use it.
  • Your employer may also pay into your pension, providing a boost for your pot.
     

 

 

 

What to look out for

  • The value of your pension pot could go down as well as up so you might not get back what you put in.
  • Keep an eye out on how much you pay into all of your pensions as there are limits on the tax relief you get.
  • Don’t just rely on the State Pension to provide you with an income in retirement as it may not be enough.
  • Make sure you research the different ways to save for your later life and choose the one that fits your circumstances.

A question to ask yourself is: when I stop working, how can I continue to support myself in retirement?

You'll need to think about how much money you would like to live on and how long it needs to last, especially as the age that you start getting the State Pension is increasing.

It's likely you'll have heard the phrase; the sooner you start putting money aside for your retirement the better, but even if you feel you've left it too late, you could still make a difference by kicking things off now.

There are other ways to save for your retirement. A pension is one of them but you may be using your home as your long term investment, or you could have other investments that you hope will perform to match your expectations in later life.

Pensions are a long-term investment as the sooner you start putting money aside for your retirement the better, even if you're saving a small amount. They’re also a tax-efficient way of putting money aside.

What's more, currently, once you reach 55, you can choose what you want to do with your pension pot and you don’t need to stop work to access it. There are situations where you could access your pension before age 55. You can read more on the gov.uk website.

You may wish to seek financial advice to make sure that the pension you choose will help provide you with the retirement you want.

Why do we need a pension

Here are some of the reasons for having a pension

Tax relief

When you contribute to a pension, each payment can receive tax relief, subject to certain limits.

Tax-efficient growth

Money in your pension pot grows largely free of tax. This could help to boost the amount you have in your fund.

Employer contributions

With workplace pensions your employer makes contributions to your pension, increasing the amount going into your pot.

Access to investing
in funds

In a pension, you're able to put your money in a range of investments, such as the stock market, commercial property, bonds, and funds. The range of investments will depend on the pension you choose.

Tax-free cash

From 55, you can usually take up to 25% of your pension free of tax and then decide what to do with the rest.

What's good about pensions

  • The money you pay into your pension usually attracts tax relief and this can be at your highest rate.
  • Your employer may also pay into your pension, providing a boost for your pot.
  • When the time comes to accesss your pension, the first 25% of your withdrawal will usually be tax-free with the remainder subject to income tax.

 

What to look out for

  • The value of your pension pot could go down as well as up so you might not get back what you put in.
  • Make sure you know the charges involved in your pension plan.
  • Make sure that your fund choices are in line with your expectations both now and in the future.
  • Pensions are supposed to be long-term so check that you’re totally comfortable before you start contributing.

Saving in a pension is a tax-efficient way of putting money aside for retirement.

So how does it work? When you make a payment into your pension you usually receive tax relief from HM Revenue & Customs (HMRC). And the sooner you start contributing to a pension, the more potential your money will have to grow.

Just like any other investments, the value of your pension pot could go down as well as up, so you might not get back what you put in. You will need to keep track of how your pension is performing and make changes to suit you.

Tax and reliefs will depend on your individual circumstances and tax rules can also change.

What are the tax benefits

What you need to know about paying into a pension

How tax relief works

If you're looking to contribute to a personal pension (including group personal pensions) and want to pay £100 into this - you pay £80 and HMRC then tops this by the equivalent to the basic rate of tax, so by another £20. If you’re a higher or additional rate taxpayer, you can also claim additional tax relief through your tax self-assessment form at the end of the tax year.

If you're employed and looking to contribute to a workplace pension, then contributions may be deducted directly from your salary before it's taxed. This gives your contributions an immediate tax saving, meaning that £100 would be going into a workplace pension. This would cost you £80 from your take home pay if you're a basic-rate taxpayer, £60 if you're a higher-rate taxpayer; or £55 if you're an additional rate taxpayer.

Tax relief limits

Paying into a pension plan usually attracts tax relief but there are limits on how much you can pay in (known as the Annual Allowance) before you face a tax charge.

When you're ready to take your pension benefits, if all of your benefits exceed a Lifetime Allowance you may be subject to a tax charge. You may also have to pay tax when you start taking an income from your pension.

Understanding all of the tax rules can be complicated so we’ve prepared a Questions & Answers document on pension limits and allowances to provide more information and show how this may affect you.

It’s a good idea to seek financial advice if you’re unsure of how much to pay into a pension or the tax implications.

What's good about tax relief

  • The money you pay into your pension usually attracts tax relief and this can be at your highest rate.
  • For workplace pensions, if your contributions are deducted before tax, then you don't need to do anything to get your full tax relief.
  • You don’t usually pay tax on your pension pot until you're ready to take money from it.

What to look out for

  • Keep an eye on how much you pay into all of your pensions as there are limits on the tax relief you get.
  • If your personal situation changes, check that your pension is still on track to provide you with what you want.
  • If your tax situation changes during your working life, this could have an impact on your contributions or when taking benefits.

Save with a Prudential pension

There's no time like the present to start saving for retirement, or to save more for your retirement. We have a range of pension products to help you plan for the future.

Our pension products

Where can I learn more?

Unbiased

Find an independent financial
adviser in your area to help you in
your future pension planning.

Visit
www.unbiased.co.uk
and enter your postcode.

Money Advice Service

An impartial money advice website, set up by the government to help improve your finances.

Visit
www.moneyadviceservice.org.uk
to find out more.

HMRC

Visit the www.hmrc.gov.uk to get
information on tax rules and
legislation which may affect you if
you are saving, investing, or have
a pension plan.