Your pension explained: the basics

A pension is a tax-efficient way to help you save money for retirement. You save a little of your income regularly while you work, and then use this money later in life when you want to work less or when you retire as an extra income.

If you pay into a workplace pension through your job, then your employer will almost certainly be making contributions towards your pension savings too.

The State Pension is a regular income paid to you by the UK Government once you have reached State Pension age. It makes sure that everyone has a foundation for their retirement income, and is funded through National Insurance contributions, which you and your employer pay throughout your time in work. What you receive depends on your National Insurance record rather than any previous earnings, and the new full State Pension is £159.55 per week. You can check your National Insurance record and when you’re due to get your State Pension online by using the ‘Check your State Pension’ service on GOV.UK.

A workplace or private pension scheme helps you top up that income and access extra money in retirement.

There are various different types of pension schemes. Some are run by employers; others you can set up for yourself. Saving into one scheme doesn’t stop you from saving into another or using other tax-efficient savings plans like ISAs.

If you’ve got a workplace pension, it’s one of these two types:

A defined contribution (DC) pension means that you build up a ‘pot’ of money that your pension provider invests and manages for you. When you reach retirement there’s then a variety of ways you can convert this pension pot into a steady, inflation-linked retirement income, including ways which provide for dependents when you die. The income you might get depends on various factors including the amount you and your employer pay in, the investment performance of the fund, and your retirement choices.

A defined benefit (DB) pension means the amount you’re paid is based on how many years you’ve worked for your employer and the salary you earned. Your employer commits to pay out a secure, specific income for life which is usually linked to inflation so it doesn’t lose value over time. You and your employer both contribute, and your employer will usually continue to pay a proportion of your pension to your spouse, civil partner, or dependants when you die.

Both kinds of pension scheme usually have features which allow you to withdraw a lump sum when you reach retirement age, and both usually allow you to make withdrawals early if you are diagnosed with a terminal illness before reaching retirement age.

With a defined contribution pension, your pension provider will invest and manage your pension pot for you, with the aim of growing it over the years before you retire. Your pension pot will usually be invested in a variety of things including stocks and shares. Many pension providers allow you some choice in how your pension pot is invested, and a key benefit of defined contribution schemes is you can check how much is in your pot at any time.

If you’re a member of a defined benefit pension scheme, you’re not responsible for any investment decisions. Although your employer or their pension provider will invest the money, your final pension is not dependent only on the value of those investments. Your scheme promises you a specific income in retirement, and your employer has to pay out that amount.

Tips for Avoiding Pension Scams

For many people, pension savings will be one of their largest financial assets.

Savings like that can be an attractive target for fraudsters, so it’s important to be aware of how to stay protected from scams.

Here are our 6 tips for preventing pension scams:

1-hangup

Often scammers will call out of the blue offering a “free pension review”.

No reputable organisation, including Government services such as Pension Wise, would ever do such a thing – the chances are they are simply laying the ground work to steal your money.

If anyone contacts you out of the blue about your money, don’t talk to them, just hang up.If an offer promises ‘guaranteed’ returns or seems too good to be true, it probably is.

Be on your guard, do your homework and check all the details before signing anything. Check they are registered on the Financial Conduct Authority’s website.

Don’t be lured by smart brochures and snazzy websites. Scammers want to trick you and this is one way they do it.

Check everything and seek reputable guidance if you have any doubts.

Scammers will try to pressure you with time limited offers and create a sense of urgency.

Take your time to make all the checks you need, even if this means turning down an ‘amazing’ deal.

Don’t choose a scheme just because you know someone else that has it. People have fallen for scams because they’d been ‘recommended by a friend’.

As with any important decisions, investigate the details and make the right choice for you.

This will increase your risk, and scammers often ask for all of your money.

Be on your guard against unregulated investments, including those abroad.

If in doubt, call The Pensions Advisory Service. You can call them on 0300 123 1047 or visit their website at www.pensionsadvisoryservice.org.uk for free pensions guidance.

Is the ‘advisor’ FCA approved? Scammers can pose as pension advisers, so check to make sure yours is registered on the Financial Conduct Authority’s website: www.fca.org.uk/register.

Also check the FCA’s list of known scams. To find out more about the threats and risks, visit http://scamsmart.fca.org.uk/. For more tips to protect your retirement savings, visit www.pension-scams.com.

If you think you’ve been scammed, call Action Fraud. You can reach them on 0300 123 2040. Also contact your pension provider immediately as they may be able to stop a transfer that hasn’t yet taken place.

How has Pension Wise helped others?

James Crofts, one of almost 120,000 people to have used Pension Wise, booked his appointment and this is what he thought:

“I’ve worked as a sales rep all my life and I know when someone is trying to sell me something. All my pension providers were trying to sell me a product and I couldn’t find the impartial information I needed.

“My Pension Wise guider explained my options and how they related to my situation. It was a huge relief for me to be able to understand what I could do with my pension pot.”

Following his appointment with a Pension Wise guidance specialist, James has decided not to make any rash decisions on his pension, he combined his pensions into one scheme and is now taking his time and shopping around for the best deal.

To find out more about Pension Wise, or to book your free appointment today visit Pension Wise

Unsure which way to go with your pension?

We know that pensions and planning early for your retirement isn’t always a priority.

It can also be a confusing and sometimes daunting experience.

If you are aged 50 or over and have a defined contribution pension (a workplace or private pension), you can get free guidance from Pension Wise.

what

Pension Wise is a free and impartial guidance service which offers you the opportunity to talk about your pension options and what you can do next.

Every Pension Wise appointment is with a guidance specialist, either face to face or over the phone.

The guider is trained to understand your situation and guide you on what your options and next steps are.

Although they won’t recommend any products or tell you what to do with your money, your free 45 minute Pension Wise appointment can help you to understand:

  • What options are available to you before accessing your pension savings
  • What tax, fees and charges might apply when taking your pension
  • What to be cautious of and look out for before making any important financial decisions that can affect your future
  • Tips on how to avoid pension scams

be-wary

If someone says they are from the Government or Pension wise, just hang up, don’t give out any personal details.

These organisations would never phone or text to offer a pension review.

Before you make any decisions, make sure your adviser is on the Financial Conduct Authority (FCA) approved register and check the FCA list of known scams to see if the deal you’re being offered is a known scam.

If you’re worried, contact the Pensions Advisory Service on 0300 123 1047

If you think you’ve been scammed, contact your pension provider and Action Fraud immediately on 0300 123 2040

For more information on scams, or if you think you’ve been targeted, visit www.pension-scams.com

booking

Simply call 0800 138 3944 to book a telephone or face to face appointment or visit Pension Wise

Find out how Pension Wise has helped others

 

Planning for retirement can often be an afterthought

That’s why we’ve put together some handy tips to help you plan ahead.

point 1

Reaching State Pension age means that you can claim the State Pension; it doesn’t mean you have to stop working.

Staying in work and taking control of when and how you want to retire can give you more money in later life, as well as benefiting your health and well-being. 

Check your State Pension age.

pensions-images-2-(master

Whilst the State Pension is an important foundation for your retirement, many people choose to save in addition to this. 

Now is a good time to consider the income you will need to continue doing the things that you enjoy when you retire. 

We’ve now provided over one million State Pension online forecasts through our Check your State Pension service

point 3

One of the easiest ways to save for your future is to stay enrolled in your workplace pension, with 6.7 million people already saving towards later life.  

If you’re below State Pension age (and above 22), earn over £10,000 a year, ordinarily work in the UK and haven’t already been automatically enrolled, you will be in the next couple of years. 

Find out how you could benefit from a workplace pension.

point 4

The average person will have 11 jobs during their working life, so it’s easy to imagine how we can lose track of past pension schemes.  

The Pension Tracing Service makes it faster and simpler to search the names of previous employers or pension providers to find details including a contact name, telephone number, email or address.

Track down your lost pension.

point 5

Pension freedoms mean you can now decide for yourself what to do with your pension savings. 

If you’re 50 or over and have a defined contribution pension, Pension Wise offers free, impartial guidance to help you make sense of your options. 

It won’t tell you what to do with your money, but will offer guidance on tax, shopping around for the best deal and avoiding scams. 

Find out more and book a free phone or face-to-face appointment at Pension Wise

And remember, retirement planning doesn’t have to stop at State Pension age. 

There are several ways to increase your income in retirement. 

If you know someone who reached State Pension before 6 April 2016, this could include the opportunity to boost their State Pension for life by making a one-off lump sum payment. 

This scheme won’t be right for everybody. More information is available at State Pension top-up