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Frequently Asked Questions

Pensions in general

Introduction to pensions

Learn more about pensions and how they work.
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What is a workplace pension?

A workplace pension is a way of saving for your retirement organised for you by your employer. It is sometimes called a ‘company pension’, an ‘occupational pension’ or a ‘works pension’.

Put simply, a pension is a savings scheme that you pay into while you are working to help make sure you have regular money coming in when you retire.

Its tax efficient as the money you pay in, or contribute, is taken from your salary before tax is deducted, reducing the overall amount of tax you will pay on your salary. Your employer also contributes to your pension, so together you and your employer are saving for your future.

Many of us don’t want to have to compromise our lifestyles in retirement, so taking an interest in your pension planning is a great way to do something positive for the future.

How do I know I'm saving enough for retirement?

Retirement is no longer seen as ‘the end of the road’, and most of us won’t want to change our lifestyles because of it. Why not take the time to think about what you want for your retirement so you can start planning for it today?

The lifestyle calculator can help you get an idea of what your unique lifestyle costs and how much income you may need to afford it when you retire.

 

How much will I get when I retire?

The amount you’ll get depends mostly on how much has been paid into it and:

  • the rules of your Scheme, if you’re in a defined benefit scheme; or
  • how well your investments have performed if you’re in a defined contribution scheme

The Scheme is defined benefit, while additional voluntary contribution (AVC) arrangements are defined contribution.

What are Annual and Lifetime Allowances?

The Annual Allowance (AA) is a limit on the amount of pension savings you can make into your scheme(s) (you may have more than one) in any given tax year. If you exceed your AA, you may be charged tax on the excess.

The AA is currently £40,000, although a lower allowance applies to high earners. If your taxable income is more than £200,000, you should learn more about the tapered annual allowance as it may affect you.

You can carry forward any unused Annual Allowance from the past three years.

A lower allowance of £4,000 may apply to any future pension savings you make to defined contribution pension arrangements if you’ve taken money out of your pension pot. This is known as the ‘Money Purchase Annual Allowance’.

The Lifetime Allowance (LTA) is the maximum amount you can take in pension benefits during your lifetime from all the pension schemes you may be a member of without incurring additional tax charges. If the LA is exceeded, you will be subject to the LTA charge. The LTA is £1,073,100 for the 2020/21 tax year.

You can read more about the AA and LTA at www.gov.uk/tax-on-your-private-pension.

You are responsible for monitoring your AA and LTA and reporting any excess to Her Majesty’s Revenue & Customs (HMRC).

How will I know if I have exceeded the Annual Allowance?

Your Benefit Statement will give you an indication of how much of the annual allowance you have used. Your Scheme Administrator will also advise you if you exceed the Annual Allowance.

Who is responsible for notifying HMRC of a liability to the Annual Allowance (AA) charge and how can the charge be met?

You are responsible for reporting any excess in your benefits over the annual allowance (after using up any carry forward) via self-assessment. The amount of annual allowance charge will be included in your tax calculation and you would normally have to pay any charges by the usual self-assessment payment deadlines.   

The Scheme also has a responsibility to notify HMRC via Event Reporting if someone exceeds the Annual Allowance.

A member can request use of the ‘Scheme Pays’ facility in order to meet the tax charge.