Planning for your pension - your questions answered

Couple planning pension

Sleepless nights, weaning, toddler tantrums – the list of important issues we battle daily can seem endless. So how do you keep on top of saving for the future when you're knee-high in laundry?

We've teamed up with Scottish Widows to find out Mumsnet users' most pressing concerns about planning a pension. So grab a cuppa and read on to find answers to your questions from Scottish Widow expert Jackie Leiper.

With the increase to workplace pension contributions will all companies have to pay 8%? I work in a small company that currently pays 7%
Two men on a laptop

Under Automatic Enrolment it’s not necessarily your company that need to pay in a minimum of 8% but the total that you, your employer and the taxman pay in will need to reach 8%. If your company currently pay in 7% it’s unlikely they’ll have to increase their contributions.

To try to ensure people are saving enough for their future, the Government has increased the minimum amount that you and your employer jointly save into your workplace pension. The Government has increased the minimum contribution from 5% to 8% of your qualifying earnings, helping people save more for their retirement.

Your employer must pay at least 3% of the 8% minimum contribution, and you’ll pay any balance of up to 5%. Your employer will let you know how the increase will affect your contributions. As well as increased employer contributions, you’ll normally also benefit from tax relief too. Remember, if you get basic rate tax relief, for every 80 pence you pay into your pension the Government will top this up to £1.

It’s worth noting there are currently no plans to make further increases following the 2019 increase. You can stop contributing to the scheme, but you’d be missing out on valuable retirement benefits including all the money your employer would put into your pension pot and any tax relief the Government adds to your contributions.

To see how the changes could affect you visit the automatic enrolment section of our website, or for more information or to increase your contributions speak to your employer.

With the minimum contributions to workplace pensions increasing to 8%, is it worth contributing more than the minimum amount?
Pension in a jar

The increase to workplace pensions will be a welcome boost in helping people save more towards their future, however there is always a question about whether it will be enough.

How much you save and will need in your retirement is a very personal thing and depends on your circumstances. You should work out how much you think you’ll need. Remember to factor in if you’ve paid off your mortgage, if you are renting, how much you’ll need for transport, food and general living costs as well as funding your holidays and hobbies in retirement.

While the minimum workplace contributions have increased to 8% we do recommend 12% of your overall earnings, but this does include anything your employer and tax man would pay in too.

If you only save the minimum into your pension it could mean less money to support you in retirement. If you get a pay rise, a bonus or have spare cash left over each month, topping up your payments by even a small amount could really add up over time.

The pension calculator on the Money Advice Service website shows how small changes now could make a big difference when you retire. You can also watch our Pension Basics film to see how you could pay more into your pension.

At what point is it too late to sort out a pension?

It’s never too late to start saving for your retirement, but the longer you leave it the more you will need to contribute to achieve the retirement income you want.

You do have options but first it’s best to check that you don’t have any pensions you've forgotten about through previous workplaces. The Government website has a great tool to help you track down any lost pensions, and there may be more in them than you think.

Don’t worry however if that doesn’t unearth a pension pot you had forgotten about. You should work out how much you’ll need in retirement, what your outgoings will be, what type of lifestyle you want and if you plan on helping out children or grandchildren financially. Once you have an idea of how much you’ll need, you can set a plan on how to get there. The Money Advice Service calculator can help you work it out.
Retirement plan

If you’re in employment you can join your workplace pension. You’ll benefit from this as the tax man and your employer will pay in too, but you may need to pay higher contributions to achieve the retirement you want if you’re starting to save in later life.

Providing you’ve met your National Insurance contributions you’ll also receive the State Pension. For the tax year 2019/20 this could provide up to £168.60 per week when you reach State Pension age. You can see how much you’ll get and when you’ll receive it via the State Pension forecast on the Government's website.

You’ll also have options on delaying your retirement or phasing into retirement by working part time to help provide you with an additional income. If you choose to do this you can delay your State Pension and you can also contribute to a pension and get tax relief on up to 100% of your earnings, or £3,600 if you don’t have any earnings right up to age 74.

For additional support on saving for retirement, visit our retirement explained website which has lots of information to help with your next steps. If you still think you won’t have enough income when you come to retire you should speak to Pension Wise or an independent financial adviser to discuss your options.

How can I merge different pensions together?
Middle aged couple looking at paperwork

It is common for people to have a number of pensions usually through lots of different jobs. In fact, a recent statistic revealed that on average people have 11 jobs over their lifetime and that can mean a lot of pensions building up.

There are a number of reasons why it can be beneficial to combine your pensions. Having all your plans in one place will be easier to manage and could save you money on pension fees. Although it’s important to make sure you can combine and that it’s right for you. Some pensions come with benefits and guarantees which you may lose when combining so it’s important you look at what’s right for you.

Once you’ve looked at your plans, most pension providers will have information on how to combine them. You’re best to start online and look at your options. To find out more, or if you feel you’re ready to combine, you can visit our website or speak to one of our experts who’ll be with you every step of the way. Or speak to one of our advisors on 0345 608 0380.

I'm hoping to take maternity leave, and maybe an extra year off. What should I do about my pension during the time I am not working? Is it worth trying to keep my contributions up to their usual level, even if it means spending less in other areas?
Pregnant woman

Whether you’re male or female, if you’re taking time off for a baby or looking after a child your pension might not be top of your list. However, it’s worth thinking about how time away from work could affect your pension contributions.

If you’ve been enrolled into your workplace pension your employer will continue contributing to your pension scheme. The contributions are based on your salary so if your salary reduces during this time your contributions will too, except for during the period of paid parental leave when your employer must maintain their contributions. Your employer is not required to contribute during unpaid parental leave, but some may agree to. You should speak to your employer to see how it works for you and you can let them know if you want to increase, maintain or stop your contributions – but work out what is best for you in the long run.

If and when you return to work you’ll be able to increase your contributions to make up for any period of lower contributions. If you return to work part time your pension will build at a slower rate so you may want to consider topping up your monthly contributions.

If you decide not to return to work your pension will remain with your pension provider until retirement, and by claiming Child Benefit you’ll get National Insurance credits which will count towards your eligibility for the State Pension. If you’re self-employed you have the freedom to decide how much leave you want to take and how much you want to put into your pension.

For more information visit The Pensions Advisory Service website. Our Pension Basics film also explains what happens to your pension while on parental leave:

How does tax relief work? Do I have to notify HMRC how much I pay into a pension or do they know from my wages?

Tax relief is one of the big benefits of saving into a pension. The Government will normally give you tax relief on your contributions which will help increase the value of your pension plan.

Some workplace pension schemes use the ‘relief at source’ method to give you tax relief. This means that if your pension contribution is £100 a month, your employer deducts £80 from your after-tax income. Your pension provider then adds back in this 20% basic rate tax relief and then claims it on your behalf from HM Revenue and Customs (the ‘taxman’). If you’re a higher or additional rate taxpayer, you’ll need to claim additional rate tax relief from HMRC – usually by using your self-assessment tax return.

This method means you get tax relief even if you don’t earn enough to pay income tax.

Other workplace pension schemes use the ‘net pay’ method to give you tax relief. This means that if your contribute £100 a month into your pension, your employer deducts £100 from your income before working out your income tax. So you automatically get the correct rate of tax relief at the outset. However, if you don’t earn enough to pay income tax, you don’t get any tax relief.

When you add in what your employer will pay into your pension on top of your tax relief and your own payments it can quickly add up.

However, it is worth noting that tax rates will depend on your individual circumstances, and the rules can change, so it’s worth keeping an eye on this. If you’re a Scottish or Welsh taxpayer you’ll also benefit from tax relief at your local rate.

How easy is it to start a pension scheme and keep track of it once set up?
Pension advisor

A pension is one of, if not the most, tax efficient way of saving for your future! We would recommend that you set up a pension to help build for your future and there are many different ways to do this.

For a workplace pension, if you’re aged between 22 and State Pension age and earning over £10,000 per year you will be automatically enrolled into your workplace pension. This means that you, your employer and the taxman will all pay in to a minimum contribution of 8%. You can opt out of this but you will automatically be re-enrolled every three years. If you’re not sure if you’re in your workplace pension then speak to your employer. If you earn between £6,132 and £10,000 per year, you won’t be automatically enrolled into your workplace pension – but if you choose to opt in, your employer will pay in too.

In terms of a personal pension, most pension providers will help you set one up through their website. However, it may be worth getting advice from an independent financial adviser on what the best option is for you before proceeding. You can find out the options available through Scottish Widows on our website,

Once set up it is relatively easy to keep track of. Your pension provider should send you an annual statement letting you know how much you’ve saved, and you can generally keep track online. If you save into a Scottish Widows pension and bank online with Lloyds, Halifax or Bank of Scotland you may also be able to view your pension on your online banking, making it easier than ever before to keep track.

What happens to my pension if I die shortly after I retire? Do all my pension savings just disappear on my death?

It is important to know what will happen to your pension when you die and how it will be left to your family or significant others.

The following rules apply to ‘money purchase’ pension schemes – there are different rules for final salary pension schemes:

If you die before the age of 75, and you’ve started to use your pension savings, any remaining funds can be paid to your beneficiaries, tax free. For example, there might be funds left over after you’ve taken your tax-free cash or started to receive flexi-access drawdown income.

If you’ve got untouched pension savings that you haven’t used to provide any form of retirement benefits, anything left in your pension pot can normally be paid to your beneficiaries, tax free, provided it’s less than the lifetime allowance (£1.055 million in tax year 2019/20).
Woman thinking

In both cases, your beneficiaries could receive a lump sum or flexi-access drawdown – which allows them to keep the funds invested and to draw an income over time. It’s also possible to use the funds to buy an annuity – which offers a guaranteed income.

If you die aged 75 or older, anything left in your pension pot can be paid as a lump sum, used to set up flexi access drawdown, or as a guaranteed income – all of which will be taxed at your beneficiaries' personal rate of tax.

There is normally no inheritance tax to pay on pensions, but it is worth checking with the pension provider as it can depend on how it is set up.

If you’ve used all the money in your pension pot to buy a guaranteed income for life before you die, the income will normally stop on your death. If you’ve chosen to provide a dependant’s income, however, that will be paid to your dependant. Again, if you die before age 75, the income will be tax-free, but will be subject to tax if you die after 75. The State Pension is generally paid only to you and can’t be passed on to someone else when you die, but there are options where your qualifying years of entitlement can be passed to them to top up their State Pension.

Visit the Scottish Widows website to find out more on what happens to your pension when you die or watch our Pension Basics film:

I have been a SAHP for eight years, but before that I was a secondary school teacher. How do I find out what I need to know about my pension contributions from when I was working?
Dad and daughter playing

Most schemes send out annual communications which will provide you with information about the current value of your pension savings or benefits if they have your correct address on file.

You might miss out if you’ve moved, or changed email addresses. If so, it’s worth checking to see if you’ve got any old paperwork relating to your pension, which will usually include contact details, so you can get in touch to find out the current value of your benefits

In addition, many large pension schemes have their own websites with dedicated areas for members. For example, the website for the Teacher’s Pension Scheme

If you need to trace a pension and none of the above solutions are helpful, there is an official pension tracing service.

How much do you need to have in your pension pot for a decent retirement income?
Pension pot money jar

The more money you’ve saved, the more likely it is you’ll be able to make the most of your retirement. So, it may sound obvious, but pay as much into your pension as you can afford. The more you put in, the more you’re likely to get out.

Our recent Retirement Report recommends you pay in at least 12% of what you earn every month. This does include anything your employer pays in and tax relief you get from the Government, however this may not yet be high enough. On average people say for a comfortable retirement they’ll need an income of £23,599 per year. That might sound quite high, but it shows the difference between what we expect from retirement and how much we typically save, especially if you plan on retiring before State Pension age.

What is the youngest age you can start a private pension and is that age likely to rise in line with further higher state pension claim ages?
Child saving

You can actually join a personal pension scheme at any age. So it’s even possible for a parent or grandparent to start contributing to a child’s pension from the day they are born.

If you’re an employee earning at least £10,000 a year, you will be automatically enrolled into a workplace pension if you’re at least 22 years old and under state pension age. If this doesn’t apply, you’ve still got the right to join your employer’s pension scheme if you’re between 16 and 74 years old. Your employer must contribute so long as you’re earning at least £6,136 a year in 2019/20

And lastly…

Thank you for all your questions. It’s been a pleasure helping you plan for your future. If you have any more questions, you should check out our Pension Wellbeing Guide which helps address three key questions: 1.What have I already got? 2. Am I on track? and 3. What do I need to do next?

We also have a suite of Pension Basics videos helping answer the most common questions on retirement, and our Taking on your future together hub contains a collection of calculators and useful tools to help continue your retirement planning.

Pensions are a long-term investment. The retirement benefits you receive from your pension plan will depend on a number of factors, including the value of your plan when you decide to take your benefits – which isn't guaranteed, and can go down as well as up. The value of your plan could fall below the amount(s) paid in.

Every care has been taken to ensure that this information is correct and in accordance with our understanding of the law and HM Revenue & Customs practice, which may change. However, independent confirmation should be obtained before acting or retaining from acting in reliance upon the information given.