Pensions

[HoliHormonalTigerLillyTheSecond]

I have a work one.
Can i just open another one?
Just for me?

Or would it be better to put more in the same one?

Surely spreading the risk is better?

Yes. You can open a thousand if you like. I think there's a cap on how much you can add Tax free per year but it's in the hundreds of thousands

Usually it's better to have one so you can keep on top of it and track it. I look at mine every month. A workplace pension is safer, if you have a SIP you need to understand which funds snd shares to invest in and watch it a lot. The maximum you can put into pensions is 60k per tax year.

The area of "what to do best iro of pensions" is complicated, and very much depends on personal circumstances. That is why you can get "guidance" (which sets out the basic rules but does not relate it to your exact circumstances (you have to interpret this yourself) or "advice" which is tailored to your exact circumstance, but it will cost you fees. In basic terms. when you put (extra) money into your pension you get tax relief, this means that every £1 you put into your pension, it normally only costs you 80p. There is a limit on how much you can put in per year, and a lifetime. There are lots of benefits to having money in a pension pot, the first is that you can (on retirement, which can be from 55 years old currently, depending on scheme) you can get 25% of your total "pension pot" a lump sum, which is tax free. Another benefit is that pension pots are free from Inheritance tax, they are not counted as part of your estate. A final consideration is that some things (such as child benefit) are based on your income after you have made pension payments. You can, should you wish, open many pension schemes with many providers, but you would need to understand what you were doing, understand the fees they were charging, and what they were investing in on your behalf. Pension schemes spread their risk when it comes to investments on your behalf. Many have options to go "riskier" if you would like, or safer. It is up to you on this one. Most workplace pensions are fairly well protected (so if you are worried about your employer going bust, they cannot use your pension pot to pay off their creditors !) It is a bit of minefield and it massively depends on your circumstances, but one final thing I would add is it is that once you have put the money in, that's that until you take it. Hope this helps x

You mean a limit on how much you can pay in and attract tax relief. It’s nowhere near the hundreds of thousands!
The annual allowance is the lower of your qualifying earnings or £60K (it only went up from £40K for this tax year).
Easily enough for the vast majority of us so that it might as well be hundreds of thousands - but it isn’t! You might be mixing it up with the lifetime allowance with is a bit over a million?

There are reasons to have more than one, but whether they’re good reasons depends on individual’s scenarios and needs.

For example, I can’t take my work pension before 65 without taking a big reduction - so for me it makes sense to save into a personal one with the aim that I use that to retire 2 years before 65.

But in spreading the risk…

Your work pension will not be invested in one company’s shares (which would be very risky). Generally you invest in a fund, and that fund is a mix of different types of investments - different companies, industries, geographies, some government bonds (different to shares). So within the fund you have now, there should be a spread of risk. In addition to that, the fund is probably “managed” meaning that the fund provider is rebalancing it.

If you don’t mean the investment risk but the risk that a pension provider will go bust, it’s not the same situation as you may have heard of years about, with regards to final salary pensions. Today, there is sone protection for these from the Pension Protection Fund, and in any case you are likely to have a different type of pension. If your pension provider goes bust, the fund they invested in for you would still exist. So also no need to manage risk there. The fund itself can still go up and down - but see my previous paragraph - a fund won’t have all eggs in one basket anyway.

Start by finding out what fund your work pension is invested it - if it’s not final salary / CARE.

I belonged to the Teachers Pension but opened a Stakeholder Pension when my exh had to pay me some of his pension under pension sharing rules. I just kep adding to begin with £250 pcm then later£400 pcm and over the years it added up also got government top of 25 percent. I retired early and drew down 25 percent tax free then used the rest to draw down until I got my Teachers Pension.

There is, currently, no maximum Life Time Allowance either - that was abolished when the annual allowance was increased as an attempt to fudge the issue with doctors pensions.

what type of pension do you have with your work? Is it a defined benefit? Defined contribution?

Unless you work in the public sector most workplace pensions now are defined contribution, so you are paying in a % of your monthly salary and your employer should be paying in a % as well (how much varies massively between employers).

So firstly find out what pension you have, what % you are paying in, what your employer pays in at the moment. If you increase your % will they increase theirs to match? If they will then this is a 100% return straight away and it is a absolute no brainer to ensure you are maximising your employer contribution.

What is making you think you need to set up your own pension?

The lifetime allowance hasn’t been abolished yet. It still exists but currently the lifetime allowance tax charge has been removed (you still pay tax on benefits over the lifetime allowance but at your usual marginal rate of income tax, not the special lifetime allowance rate that existed before). It is due to be abolished completely from April 2024 but for now it’s still in place.

Not that it affects many people!

OP, I suggest you ask this question on Money Saving Expert on the Pensions forums. There are some very knowledgable people on there who are extremely helpful. There are some good answers on here for you, but one or two, hmm! 🤣

As a general point, it may be a very good idea to set up a second separate pension. Check the age of retirement on your work scheme, many don't kick in till State Pension age, but in practice many people don't or can't continue to work till age 67 or 68. A second pot that you could draw down from from your late 50s would be very useful, and could also allow you to gradually reduce your hours in the run up to full retirement. (I'm being a bit vague as to ages here as they are gradually changing).

People usually forget this potentially vulnerable period of their lives when pension planning.

I have a defined benefit pension through work and it makes sense for me to hold off on drawing that as long as possible (ideally until 65) otherwise the annual payment gets reduced.

I also have a second personal pension I pay into. The aim is to draw on that one when I get to 60 to cover the 5 years until I start taking the workplace one.

I may also need to take some money from the personal pension as a lump sum to help the kids with uni costs when the time comes. I think the added flexibility works for me, and I also don’t like having all my eggs in one basket! I appreciate though that I’m in a fortunate position to have the option to pay into two.