When it comes to thinking of the retirement you want to enjoy, having a clear picture of your pension planning is key. The problem is...pension pots can be confusing.
Because they don’t just come in one form. There are different types you can explore: one provided by the government for those who are eligible, another available through your employer, and others that you can choose to have privately (separate from the first two).
Read on for a breakdown of these different types and what you need to know. Or jump straight to a type of interest here:
- State Pension
- Workplace pension
- Self-Invested Personal Pensions (SIPP)
- Stakeholder pension
- Why a SIPP Could Benefit You
State Pension
This is a regular payment you’ll receive from the government when you reach retirement age, if you’ve spent your working years building enough National Insurance contributions or credits (for years when you may be a stay-at-home parent, carer, have ill-health, or unemployed).
Everyone who is a UK tax resident is eligible to build up their qualifying years to receive the State Pension.
How it works
To get any State Pension, you’ll need at least 10 years’ worth of National Insurance contributions or credits; if you don’t meet this requirement, you may not receive any money from the government.
The maximum amount you can get is £230.25 a week (£11,973 over a year), but to receive the full amount, you’ll need to pay contributions for at least 35 years. Subject to change in the future.
How to check your National Insurance contributions
You can sign into the Government Gateway website with your personal details to see if you have any gaps in your contributions — you may be able to make a voluntary payment to make up any missing qualifying years.
If you’re employed in the UK and earn at least £125 a week, you should be eligible to build some State Pension entitlement [1]. Once you earn over £242 a week, your NI contributions become mandatory and will be automatically taken via your payslip.
If you’re self-employed, you won’t have anyone to make contributions on your behalf, and you’ll need to do it yourself. If you earn at least £6,845 a year [1], you may still be eligible for some State Pension benefits, but once you earn over £12,570, your National Insurance contributions become mandatory and will count towards a fully qualifying year.
What age you can claim it ?
If you’re eligible to claim a State Pension, you’ll only be able to move your pension money into drawdown (when you start withdrawing your pension money) and take money out once you reach your State Retirement Age. This is only the age for the State Pension though (other pensions may have an earlier age).
Two months before you reach your pension age, you’ll receive a letter that will tell you what to do to claim your state pension. If you don’t get anything, make sure you get in touch with HMRC.
Workplace pension
Outside of the State Pension are private options, one of which is the workplace pension scheme.
Workplace pensions schemes allow you to put money aside for retirement through your regular wages and they’re generally arranged for you by your employer.
Who’s eligible for a workplace pension?
Typically, you’ll be automatically enrolled in your workplace pension once you’re earning above the minimum threshold or if you voluntarily opt-in below the threshold.
How it works
There are two types of workplace pensions:
Defined benefit pension
These workplace pensions are commonly associated with public sector roles; such as the NHS, Civil Service, or fire service.
- They usually give you a guaranteed income for life from the day you retire.
- The amount you’ll get may increase each year in line with inflation.
- These schemes are generally seen as being highly beneficial and it might not be in your best interest to transfer your money out of this type of scheme before retirement. Many providers, Wealthify included, would not accept a transfer of a defined benefit pension scheme.
How much you’ll receive in your guaranteed income will depend on how much you paid into your pot through your payslip and how many years you were employed.
Defined contribution pension
This type of pension is more likely to be seen in the private and third sectors (as well as being the only option for personal pension pots — more on that later). The money you put into this type of scheme is invested by the pension provider your employer has chosen to use.
The amount you’ll receive back during retirement will depend on:
- How much you’ve paid in (including your employer’s contributions, and any applicable tax relief on your personal contributions);
- How long you’ve been paying in;
- And how well the investments have performed.
Defined contribution schemes are quite common and there are less restrictive rules around transferring. Wealthify, for example, can accept transfers and consolidations of past pension pots you hold that are the ‘defined contribution’ type.
How much can you put in your workplace pensions?
As things currently stand, you need to contribute at least 5% of your income, and your employer matches an additional minimum of 3% of your pay to boost your pot. You don’t need to arrange any payments yourself as everything is automated and a portion of your salary will go to your pension pot every month before tax.
You should still be able to contribute more than the minimum 8% yourself or if your employer has a more generous policy, as long as the contributions stay beneath your annual pension allowance.
What age you can claim it?
The general retirement age is currently 55. However, this may change in the future — it’s set to rise to 57 in 2028.
How to check your workplace pension
To find out the pension scheme your employer is currently paying into for you, ask your HR, finance, or payroll team to give you the details of the scheme provider. Once you know, you should be able to get in touch with the provider (these days there’s often an option to log in online).
There’s usually a projection of your future retirement fund to give you an idea of how much the pot could be worth by the time you retire.
Please remember that projections are only forecasts and not a reliable indicator of future performance. With investing, your capital is at risk, and you could get back less than you put in.
How to find old workplace pensions
Throughout your career, you may move jobs several times and get enrolled in different workplace pensions. With time, it’s easy to lose track of all the pots you’ve contributed into.
So, if you don’t know where your pensions are, it could be a good idea to locate them – you can easily find your lost pensions via the HMRC website: Find pension contact details.
Once you know where your pensions are, it could be worth bringing them all into one pot — that way you’ll have everything in one place, and it’ll make it easier for you to manage your retirement savings. But before consolidating your pensions, make sure you shop around and compare what providers are offering.
It’s also important to look at their fees, as they’ll be eating into your potential returns. But don’t just focus on costs and charges, and consider the overall service, including things like customer service, user experience, and investment strategy.
Self-Invested Personal Pensions (SIPP)
A personal pension is a type of pension that gives you more control and flexibility over your retirement savings. Not only do you have some say on how and where your retirement money is invested (compared to the State Pension or workplace schemes), but you can make your own contributions too.
Often, you’ll see people talk about Self-Invested Personal Pensions, or ‘SIPPs’. This is a type of personal pension where your investments can grow free from capital gains tax. And with Wealthify’s SIPP, you can opt in to get a 25% tax relief top-up on anything you personally contribute!
Anyone can have a SIPP
While they are a popular choice for self-employed individuals, those who already pay into their employer’s scheme can have a SIPP too.
Siphoning off a part of your monthly budget and setting up a Direct Debit to go out every payday could be a strategy to pay into a personal pot without even having to think about it.
How much can you put in a SIPP?
Over the years, you can build the pot up to any sum you like, however, there’s an annual allowance to keep in mind; for most people, this is:
£60,000 a year, or 100% of your earnings, whichever is lower.
This annual allowance includes the combined contributions made by you, and the tax relief top-up. The allowance applies across all pension pots you pay into over the tax year, including workplace pension schemes.
For high earners (over £200,000 a year), your pension allowance may be reduced.
How to check your SIPP
Most SIPP providers, including Wealthify, offer an online log in option for you to monitor your SIPP.
You can use either our online dashboard or award-winning app to check how yours is performing and to see how our in-house Investment Team are managing your portfolio for you.
When can you start taking money out of a SIPP?
Same as with the workplace pension scheme, personal pensions can be accessed when you turn 55 (57 in 2028), but you’ll still have the possibility to pay into your pot until your 75th birthday.
Once you’re retired, you’ll be allowed to take up to 25% of your money as tax-free lump sums, as a regular income, or a mix of both strategies. The remaining 75% is then taxable at the relevant income tax rate.
Although it’s tempting to withdraw money on your 55th birthday, the longer you wait, the better chances your pension has to grow.
Stakeholder pension
Stakeholder pensions are another type of personal pension. They are a defined contribution pension scheme and usually need only low contributions amounts.
They offer a more limited range of investment options though, and so Wealthify doesn’t offer this type (as we think a wider range of investment options can be better, which is why we offer our customers a SIPP instead).
The eligibility, retirement age, and how to check it are the same as the SIPP.
Why a SIPP Could Benefit You
If the idea of the 25% tax relief top-up on your personal contributions tickles your fancy, our award-winning SIPP can be used whether you’re self-employed or just realising you’ll need to save more money alongside the workplace and State Pension schemes to reach your retirement goals.
Don’t be put off by the ‘self-invested’ part of its name — think of this in comparison to a workplace pension scheme where your employer’s provider chooses how your money is invested, rather than you.
The workplace provider’s investment choices might not align with your investment style or preference for things such as ethical investing, which is why we offer a ‘Self-Invested’ Personal Pension instead. We have an expert Investment Team doing the stock market side of things for you, so there’s no DIY element involved.
With Wealthify, that hard work is done for you. Simply:
- Choose how much you’d like to put in; as one-offs or by setting up a Direct Debit, either are straightforward options.
- Select the investment style that suits you; whether it’s Cautious, Tentative, Confident, Ambitious, or Adventurous.
- Tell us if you’d prefer our Original or Ethical Plan.
- We’ll build your Investment Plan based on the results of a quick suitability quiz and our in-house Investment Team will take it from there — managing your portfolio for you on an ongoing basis.
- It’s also simple to bring your old pension pots over to your new Wealthify SIPP to have manage them all in one convenient place.
- With our handy app, you can check how your pension is performing anywhere, at any time — with Wealthify you’re in control of your retirement.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.
Your tax treatment will depend on your individual circumstances, and it may be subject to change in the future.
Wealthify does not provide financial advice. Please seek financial advice if you are unsure about investing.
