Pensions - private or not

[Bangersndmash]

Can someone give me some advice re pensions.

i heard that potentially pensions could be means tested which I questioned a friend on, surely not because you pay into your pension so surely it’s yours to have? It’s your money? I may be nieve but I know there’s quite a few ladies on here who are high earners or even just smart with money. So I put it to you all:

would it be better to pay into my own private pension? Then the money is mine? (I know this all gets taxed). What would be the pros and cons?

I am by no means a high earner, more a middle earner but looking for advice on what other people have done. TIA

She means eligibility for the state pension. You’ll just be taxed to buggery on your private pension

Assuming you have a workplace pension?

Do you mean state pensions? The NI you pay doesn’t go into a protected state pension account for you. It pays state pensions of people who are eligible today. When you are state pension age, younger tax payers pay your state pension. People who paid in more don’t get more state pension. There’s eligibility criteria like how many years or NI you’ve paid.

There are three types of pension the uk;
1 State, everyone who has paid NI contributions will receive this pensions However this is the one being talked about as moving to being means tested.
2 Employment Pension, all employers have to offer a pension scheme to staff. This scheme is attractive as your employer will make contributions too, anything from 2% to 23% of your salary.

1. Private pension, this is yours and your alone, you set it up with a pension provider and you decide on investment strategies.

What is best for you is based on your age, earnings, employment status and retirement plans

It can be tax effective to pay into a pension whilst you're working as it will reduce your tax liabilities. For example you might pay all of your income taxed at 40% into your pension, so its not taxed, and then its only taxed at 20% when you draw your pension

I think I am getting them confused, I am sorry all. I was referring to the employment pension, I thought that was going to be means tested which is why I thought, surely not that’s my money.

are you saying if I set up my own private pension I’d get taxed a lot on that @HermioneWeasley ?

@Trounlet as a middle earner in the 40-50k bracket as someone no where near retirement would you think a private pension or employment pension would be better suited? I don’t really see the difference but I want to ensure what I pay into is what I receive (excluding tax).

Lots of information here which explains the basics.
www.moneyhelper.org.uk/en/pensions-and-retirement/pensions-basics

That will give you a proper grounding, rather than odds and ends of fact and opinion.

If you are working and earning enough for NI credits you should get a state pension when you are 67, 68 or older. There are not currently any plans to means test this. If you didn't get a full state pension you may get pension credit which is means tested.

If you are working you should be auto enrolled into a workplace pension. Both you and your employer pays into this as well as getting tax relief. Don't opt out as you won't get the employer's contribution. The state pension isn't enough to live on so you need to save into your own pension or work pension too.

If you don't work but are a carer you may get credits towards the state pension. You can also buy credits. You can pay into a private pension even if you don't earn anything and still get tax relief. There are limits as to how much you can pay in.

Recommend you read up. Good places to start.
https://www.moneyhelper.org.uk/en/pensions-and-retirement/pensions-basics
https://www.moneysavingexpert.com/pensions/how-pensions-work/

I contribute to my work pension, which is a LGPS defined benefit one.

I also pay into a private SIPP pension too.

Thanks all for your help and I will read the links. Much appreciated.

Pensions are tax efficient to pay into but income from them is taxable. I suspect this will only increase in years to come.

Generally if you can use pension contributions to avoid tax at 40% (i.e. if you can make it so deducting your pension contributions from your salary reduces your income to below £50k-ish), then it's a bit of a no-brainer. It's still worth doing if you're 'only' dodging tax at 20% but then the advantages over saving into an ISA from post-tax income are usually quite a bit less. If I already had a pension via my employer then for simplicity's sake I'd just pay more into that unless the charges and fund choices were dreadful.

Scare stories about swingeing tax changes to pensions have been doing the rounds for the whole time I've been saving into a pension (going on 20 years). I've always ignored them and I suggest you do too. A fair bit of my work is pensions related and from threads on here and other forums it's clear that many people have strong opinions despite not much knowledge.

Until recently, pensions were a way to pass your savings to beneficiaries outside of your estate b/c they were not subject to estate tax in the same way as your property, assets and bank accounts. Thus, in addition to saving tax whilst you were alive and saving for your own retirement, your pension (as opposed to any bank accounts) was not included in death duties. This is ending in April 2027.

Pensions are still currently a good way to make the most of any income above £50k and decrease your income tax overall.

People get confused thinking that current state pensioners are being paid the money they paid (or didn’t) during their working life.

In fact their previous tax and NI paid for people drawing their pension then. Current taxpayers are paying for today’s pensioners. Unfortunately there are far more pensioners than there are taxpayers due to plummeting birth rates since baby boomers were born. Plus they are living much longer than their predecessors.

So, there has been some speculation that eventually the state pension will be means tested. Otherwise the system just won’t function.

My advice to my young adult DC has always been to pay into workplace pensions as there are no guarantees anything else will be available.

Employment pension.