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Releasing pensions:

What is pension release?

Pension release simply means taking money from your pension early. With the introduction of pension freedoms in April 2015, you can take as much of your pension as you wish from the age of 551. Providing you have an eligible scheme, this could be in the form of one-off lump sums or setting up a regular income. And the first 25% is tax-free. Any further withdrawals will count towards your annual income and could be subject to tax.

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What is pension freedoms?

Pension freedoms is a piece of legislation introduced by the government in 2015. It allows you to access your pension in more ways than previously possible from the age of 55. For example, you can now release your tax-free cash, withdraw what you want when you want, set up a regular income and more. It’s important to remember that accessing your pension early isn’t right for everyone as it can leave you with less to live on later in life.

For more information visit: What is pension freedoms?

Pension drawdown

Pension drawdown is a way of taking money from your pension, either as a regular income or as one-off payments, while keeping your remaining savings invested1. It offers great flexibility as you can withdraw money as and when you need to, providing you are over the age of 55 and have an eligible scheme. And the first 25% is tax-free. Any further withdrawals will count towards your annual income and could be subject to tax.

For more information visit: Pension drawdown

Can I take all my pensions in one go?

Yes. All personal and private pensions, and some workplace pensions, allow you to take all your pension savings in one go from the age of 551. But, doing so could leave you with a massive tax bill. Remember, only the first 25% can be taken tax-free and any further withdrawals count towards your annual income. This is why seeking the help of a financial adviser is a good idea as it could help you to know if this is an affordable options for you and what implications it may have.

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How much of my pension can I take?

From the age of 55, and with an eligible scheme, you can take as much or as little from your pension as you like. When deciding how much to take it is important to consider if you will be leaving yourself enough to live on throughout retirement, as well as any tax implications you may face. Remember, only the first 25% is tax-free. To know how much you can affordably take from your pension, it is good to first speak with a regulated financial adviser.

For more information visit: How much of my pension can I take?

Can I take money from my private pension to buy a property?

In most cases, yes. From the age of 55 you can take as much or as little from your pension as you like. Before tying your savings up in property, however, there are a few things to consider. Your private pension is likely to be your biggest source of income throughout retirement. So, it is important to ensure you are leaving yourself enough to live on later in life. When making a big decision about your pension, it is good to first speak with a regulated financial adviser.

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Can I take money from my pension at 55?

Yes, as long as you have the right type of scheme. Generally all private and personal pensions, as well as some workplace pensions, allow you to do so. The first 25% you withdraw is tax-free, with any further withdrawals taxable as income. When releasing funds from your pension, it is important to remember that withdrawing money early could leave you with less to live on later in life. That is why it is a good idea to first speak with a regulated financial adviser.

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Is pension release legal?

Absolutely. In 2015, the government introduced the pension freedoms which means that from the age of 55 you can release money from your pension if you have an eligible scheme. There are no restrictions on how much you can take from your pension. And the first 25% is tax-free. It is important to remember that releasing money from your pension early could leave you with less to live on later in life. So it is a good idea to first speak with a regulated financial adviser.

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Can I access money from an opted out SERPS scheme?

In most cases, yes. Any contributions made to a SERPS scheme should have been paid into a personal pension that you can access from the age of 55. Alternatively, your money could have been paid into a final salary scheme. If this is the case, then to access your savings you would need to transfer them to a private pension that offers pension release. And in doing so, you could be losing specific guarantees.

For more information visit: Can I access money from an opted out SERPS scheme?

Can I transfer my pension to my bank account?

Pension funds can only be transferred to other pension schemes. Moving your money to a bank account would mean releasing your pension fund. Any money withdrawn from a pension is taxable as income so withdrawing your whole pension could result in a large tax bill. It is also important to consider that withdrawing money from a pension early isn’t right for everyone as it can leave you with less to live on later in life. Leaving your money in a bank account rather than a pension also leaves it vulnerable to inflation and poor interest rates.

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Can I take my pension at 55 and still work?

Absolutely. From the age of 55 you can begin to access your pension funds. There is no limit to how much you can take and the first 25% is tax-free. However, money you take from your pension counts towards your annual income allowance. So, it is important to make sure that the total of your work income and your pension income does not exceed this allowance to avoid a large tax bill. Accessing your pension early isn’t right for everyone as it can leave you with less to live on later in life.

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How much tax will I pay if I release my pension funds while still working?

The first 25% of your pension can be taken tax-free. Any further withdrawals count towards your annual income allowance and will be taxed at your marginal rate. If the combined total of your work income and your pension income exceeds your annual allowance then you will be pushed into a higher tax bracket and therefore will pay a higher rate of tax. To make sure you avoid a large tax bill, it is a good idea to speak with a regulated financial adviser before releasing money from your pension.

For more information visit: How much tax will I pay if I release my pension funds while still working?

What is flexi-access drawdown?

Flexi-access drawdown is a way of releasing money from your pension, whether as a regular income or as one-off payments. By entering into drawdown, you retain ownership of your funds while receiving an income and the remainder of your savings stay invested. All private pensions and some workplace pensions allow you to access your money in this way.

For more information visit: What is Flexi-access drawdown?

If I take 25% of my pension, what happens to the rest?

This all depends on the type of scheme you have. If you have a defined contribution scheme then your pension will be moved into drawdown and the remainder of your savings will stay invested until you choose to access it again. If you have a defined benefit scheme then your savings will remain as they are until you start receiving your guaranteed income, however you guaranteed income amount will be reduced.

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I’m taking my 25% tax-free lump sum, how will the rest be taxed?

Once you have taken your 25% tax-free lump sum, any further withdrawals you make from your pension will be taxable as income. This means they will contribute towards your annual tax allowance and will be taxed at your marginal rate. Exceeding this allowance will push you into a higher tax bracket resulting in you paying more tax. Before releasing money from your pension, it is a good idea to first speak with a financial adviser.

For more information visit: I’m taking my 25% tax-free lump sum, how will the rest be taxed?

Types of pension:

What is an annuity?

An annuity is an insurance policy that gives you a guaranteed income throughout the entirety of your retirement. From the age of 55 you can choose to sell your pension in exchange for an annuity. And you don’t have to sell your whole pension pot if you want to keep some aside for lump sum withdrawals, for example. While you do gain security around your retirement income, buying an annuity also means you no longer own your pension pot and the decision is usually irreversible.

For more information about annuities visit: What is an annuity?

What is a defined benefit pension?

A defined benefit, also known as final salary, pension is a type of workplace pension. This type of pension promises to pay you a guaranteed income from a set age, giving you more security around your income in retirement. Rather than looking at the contributions you have made over the years and the returns from your investments, with this type of scheme your income is determined by your salary and how long you worked for the company.

For more information visit: What is a defined benefit pension?

What is a deferred pension?

From the age of 55, you can start to access your personal and workplace pensions. And, if you are eligible, you can start receiving the State Pension from the age of 65. However, if you decided that you don’t need to start receiving an income from your pension just yet when you reach these ages, you can defer your pension. This means you can leave your funds invested for a little longer and potentially increase the income you will get when you do decide to start receiving it.

For more information visit: What is a deferred pension?

What is a private pension?

Where a workplace pension is set up by your employer, a private, or personal, pension is one you set up yourself. You can decide how you make your contributions and how much you would like to pay in. Typically, these pensions work by investing your funds in the stock market, meaning that your money has the chance to grow through investment returns.

For more information visit: What is a private pension?

What is an AVC pension?

If you have a workplace pension, it will typically have a minimum amount that you can pay in. It is possible to make additional contributions on top of this with an Additional Voluntary Contributions (AVC) pension. This pension runs alongside your workplace pension and still allows you to receive tax relief on any additional contributions you make. Some AVC pensions also include additional benefits such as a guaranteed lifetime allowance.

For more information visit: What is an AVC pension?

Self-employed pensions

If you are self-employed, you no longer have the option of an employer setting up a workplace pension for you. This means that you will need to set up a private pension yourself. You will control how much you contribute and how often. With a private pension, you will also receive tax relief on any contributions you make. Different pension schemes come with different charges and fees so it is a good idea to search the market before setting up your pension.

For more information visit: Self-employed pensions

What is SERPS?

SERPS, or State Earnings Related Pension Scheme, is a government scheme that topped up your State Pension. It first came into use in 1978 and changed to S2P in 2002. Before the changes to the State Pension came into effect in 2016, the State Pensions had two tiers. These were a basic rate that everyone received and an additional rate made up from SERPS contributions. If you had a SEPRS pension and opted out then your money would have been invested in either a money purchase or final salary pension.

For more information visit: What is SERPs?

What is a SSAS pension?

A small self-administered scheme (SSAS) is a type of company pension for a small number of employees that offers great flexibility in the ways you can invest your pension money. Some schemes also allow family members to join also, even if they don’t work for the company. All members of the scheme make contributions, receiving further tax relief on any money paid in. each member owns a share of the money invested in the SSAS.

For more information visit: What is a SSAS pension?

What is a widow’s pension?

When a person’s spouse or partner passes away, they may be entitled to benefits from the government. These bereavement benefits are designed to provide financial aid and were previously known as a widow’s pension. In 2001, what was known as the widow’s pension was replaced by several bereavement benefits including bereavement allowance, bereavement payment and the bereavement support payment.

For more information visit: What is a widow’s pension?

What is a crystallised pension?

A crystallised pension is one that has been cashed in via drawdown or an annuity. Crystallising your pension is the process of selling your investments to access your pension savings. You can access your pension from the age of 55 with the first 25% being available tax-free. Accessing your pension early isn’t right for everyone as it can leave you with less to live on later in life.

For more information visit: What is a crystallised pension?

What are private pensions and how do they work?

A private pension is a type of personal pension. You make contributions to this type of pension yourself and receive additional tax relief on top. Your savings are then invested in stock market shares to help your pot grow. The value of your pension at retirement will depend on the contributions you have made, the performance of your investments and the charges that have been applied.

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State Pension:

What is the difference between a State Pension and a private or company pension?

The State pension is a promise by the government to pay you a set amount each week once you hit retirement age and is paid for by National Insurance contributions. You cannot release funds from this type of pension. With a private or company pension, you own the funds and your pension value is made up from your contributions and the returns on your investments. You can generally start accessing your money from this type of pension from the age of 551.

For more information visit: What is the difference between a State Pension and a private or company pension?

What is State Pension age?

State Pension age is the age at which you can start receiving the State Pension. The current State Pension age is 65 for both men and women, however it does depend on when you were born. Due to a higher life expectancy the State Pension age is gradually increasing and will be 67 by 2028.

For more information visit: What is State Pension age?

Pension contributions:

How much should I pay into my pension?

There isn’t a one size fits all answer to this question as everyone’s circumstances are different. It all depends on the cost of living the life you want to lead in retirement and your life expectancy. It is a good idea to start by paying in as much as you can, when you can. You can also estimate how much you want your pension to be worth at retirement and work out how much you need to be paying in to reach that figure.

For more information visit: How much should I pay into my pension?

How does tax relief work on pension contributions?

Tax relief is an added bonus from the government when you pay money into your pension. They give back the income tax you would have paid on that money, paying it straight into your pension. The amount of tax relief you get depends on the rate of income tax your pay. So, if you are a basic rate 20% taxpayer and contribute £80 into your pension, the government will pay in an additional £20 boosting your total contribution to £100.

For more information visit: How does tax relief work on pension contributions?

Is there a limit to how much you can pay into a pension?

Currently, the limit on pension contributions is 100% of your income or £40,000, whichever is lower. This total includes your own contributions, your employer contributions, and any HMRC top ups. You cannot receive tax relief on any contributions made over this limit. And if you don’t have an income, you’re still allowed to receive tax relief on pension contributions up to £3,600. It is important to keep an eye on the limit as exceeding it can result in a tax charge.

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Combining pensions:

How do I combine my pensions?

To combine or consolidate your pension it is best to ask an independent financial adviser to do it for you. This is because they can make sure it is the right option for you while explaining any benefits you could be losing. A financial adviser can also find you the best pension deal on the market with discounted charges. By combining your pension with your provider or a non-advised service, you would not receive this support or care.

For more information visit: How do I combine my pensions?

Should I combine my pensions?

Combining or consolidating your pension can come with many positives, such as having all of your funds in one place. In some cases, however, it could be detrimental to combine your pensions as by transferring out of certain schemes you will lose valuable benefits and guarantees. Therefore, it all depends on the pension schemes you currently have and the one you would be transferring your funds into. At Portafina, we can take a look into your pensions for you and let you know the best options for you.

For more information visit: Should I combine my pensions?

Pension advice:

What is a no obligation pension check?

A pension check is an investigation into your pension to find out how it is performing, the options available to you, and suggested changes you could make to help meet your objectives. This initial investigation is free and in many cases you can go on to receive full advice with no obligations. It is only if you choose to follow the adviser’s recommendations that a fee would be applied. Be sure to use a financial adviser regulated by the Financial Conduct Authority (our number is 754580).

Find out more about your no obligation pension check here: What is a no obligation pension check?

Where can I get pension advice?

An independent financial adviser can help you with all aspects of your pension, from reviewing the current position of your pension, to effectively managing your funds and knowing your pension options. It is important that any financial adviser you use is regulated by the Financial Conduct Authority. Our FCA number is 754580.

For more information visit: Where can I get pension advice?

How much does an independent financial adviser charge for pension advice?

This all depends on the financial adviser that you use. Many will charge an upfront fee and others charge based on the size of your pot, the pension scheme you have and what you plan to do with your pension. At Portafina, we do things a little different. In most cases, we can complete a full pension check and provide you with your personal pension recommendation without anything to pay. A fee would only be due if your decided to follow our recommendation and ask us to take care of everything for you.

For more information visit: How much does an independent financial adviser charge for pension advice?

Other questions:

What are the pension options in retirement?

Your pension options at retirement all depends on the type of scheme you have. If you have a personal, private, or workplace pension, you have six main options:

  • Take a regular income
  • Take lump sums as and when you need to
  • Keep your savings invested
  • Take your tax-free cash, if you haven’t already
  • Buy an annuity
  • Combine multiple options to get the best outcome for you

Deciding the right option can be tricky. A regulated financial adviser can help you find the best option.

Find out more about your retirement options: What are the pension options in retirement?

Can I transfer my pension myself?

Providing you have the right type of pension scheme, you can transfer your pension yourself. It is a good idea, however, to first speak with a regulated financial adviser. Some schemes comes with valuable benefits, such as a guaranteed income from a set age, and this isn’t something you want to give up. A regulated financial adviser, such as Portafina, can make sure you aren’t giving up any benefits. We can also find you the best pension deal on the market with discounted charges.

For more information visit: Can I transfer my pension myself?

How do I find my pension?

The simplest way to find a lost or forgotten pension is to use the government’s online tracking tool. With this service you can track down lost pensions using the name of any previous employers or the names of any personal pensions you have. In some cases, you can use your National Insurance number to locate a pension.

For more information visit: How do I find my pension?

What will my pension income be?

To calculate your pension income, you will need to look at a few different sources. If you are eligible for the State Pension, then you will receive an income of £185.15 per week (April 2022). Then you will also have your private or workplace pensions. The income from these will vary depending on the type of scheme you have, how you choose to access your money, and how much you have contributed over the years. A regulated financial adviser, such as Portafina, can delve into your pensions and let you know the income you could receive.

For more information visit: What will my pension income be?

How do I check my pension?

To check your pension yourself requires a lot of in depth knowledge on how pensions work. And they can get quite confusing at times. So, the easiest way to check your pension is to ask a regulated financial adviser to check it for you. Here at Portafina, if you have an eligible scheme, we can complete a full pension check free of charge. You can find out what your pension is worth, our recommendations for improving your pension, and what options you have available to you.

For more information visit: How do I check my pension?

How much is my pension worth?

To find out how much your pension is worth, start by looking into the type of scheme you have. If you have a defined contribution scheme, then the amount you have contributed over the years and the return from your investments will give you a total value. Things get a little different with a defined benefit scheme. Rather than having a monetary value, this type of pension promises to pay a guaranteed income from a set age.

For more information visit: How much is my pension worth?

Where can I find my National Insurance number?

You are likely to need your National Insurance number for a range of things throughout your life, the most important being National Insurance contributions and tax. Your National Insurance number can be found on your payslip; on your P60; on letters about tax, pension or benefits; and in the National Insurance section of your personal tax account. You can find further help on the government website.

For more information visit: Where can I find my national insurance number?

What is Pension Lifetime Allowance?

The Pension Lifetime Allowance is the total amount you can build up in your pension savings without incurring a tax charge. The allowance is applied to the total of all the pensions you hold combined, excluding the State Pension. The standard Lifetime Allowance for most people currently is £1,073,100 and will remain that way until 2026.

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What is Money Purchase Annual Allowance?

Money Purchase Annual Allowance (MPAA) is a limit on how much tax relief you can get on money paid into a defined contribution pension once you have started accessing the pension, either via drawdown or an annuity. For 2021/22 the MPAA is set at £4,000. MPAA is only triggered in certain situations where you have started to take an income from your pension.

For more information visit: What is money purchase annual allowance?

What is pension/retirement age?

The retirement age for the State Pension is currently 65 for both men and women and is the age from which you can start receiving an income. Pension age is the age at which you can start accessing your private pensions. This is currently 55 and is expected to rise to 57 in 2028.

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How to certify a document

A document must be certified when it is a copy of the original. The types of documents that need to be certified include copies of passports, photo ID and utility bills. To certify a document it must be signed and dated by a professional that is not related to you, does not live with you, and is not in a relationship with you. Those classed as professional include councillors, dentists and teacher.

For more information visit: How to certify a document?

What is the history of pensions?

We had a look at the history of pensions in the UK and have highlighted a few of the key changes.

Visit our pensions timeline page to find out some of the changes that could affect your future.

1Taking money from your pension early isn’t right for everyone as it can leave you with less to live on later in life. That’s why it’s a good idea to speak with a regulated financial adviser.

A quick reminder that the tax you pay depends very much on the current rules and your personal circumstances, and so could change in the future.