Pensions Overview

What are pensions?

A pension is simply an investment vehicle designed to provide you with an income after you have retired. It is though a complex subject with a large number of options and we have summarised the key elements here. 

The state currently provides an income for you in retirement but Government finances for this are coming under ever increasing pressure. Improved medical science, education, diet and healthcare mean that people are living longer.

This means that the proportion of the population in retirement is growing with about 3.5 people currently working to pay for every pensioner. By 2050 this is expected to be nearer 2 working people for every pensioner. The Government is therefore tending to direct money to those who need it most and to encourage people to provide more for themselves.

As the income provided by State Pensions is not high, most people should consider private pension schemes and the Government offers tax incentives to encourage saving into these.

Basic State Pension

Pensioners receive a Basic State Pension when they reach their state retirement age which is currently age 65 for men and 60 for women. However, for women born on or after 6 April 1950, this will gradually increase to 65 between 2010 and 2020.

The state retirement age for men and women will then start to change again from 6 April 2024, moving everyone’s retirement age gradually to 66, then in 2034 to 67 and in 2044 to 68.

From 6 April 2010, men and women who reach state retirement age need 30 qualifying years to get the maximum state pension. If you have less than 30 years, you will receive a proportion of the total e.g. 15 years equals 50% of the maximum pension.

A qualifying year is a year when you:

• paid enough National Insurance contributions; or
• were credited with National Insurance contributions through jobseeker’s allowance or child benefit etc.

Additional State Pension

In addition to the Basic State Pension, if you are in work, you may also be building up entitlement to the Additional State Pension which is based on your earnings.  Self-employed people do not qualify for Additional State Pension but carers or people with long term disabilities and illnesses can qualify if they meet certain requirements.

Between April 1978 and April 2002, this extra pension was called State Earnings Related Pension (SERPS). In April 2002 it was replaced by the State Second Pension (S2P) which is more generous for low earners. Higher earners, who would receive lower benefits, have the option to opt out of this scheme, and pay reduced National Insurance contributions, if they join an occupational or personal pension scheme that is contracted out.

If you are contracted out, you need to review the benefits your scheme provides because you may be better off back in the state scheme. We recommend that you contact us if you need any help in this area.

From 6 April 2012, you will not be allowed to contract out through a personal pension or an occupational money purchase scheme.

For more information telephone 01225 785570 

or send us an email.

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