Pension

[phil06]

Can anybody explain how a pension works? A state pension is about £300 a month less than I earn today. How can old people survive on it I’m not ready to retire yet but wonder how it works? I don’t earn enough to pay tax so how does that go? I pay into a work pension it says you can withdraw it by age 55. Does a work pension come in payments or a complete sum?

I know somebody at work who is 60 and not retired I guess because work pays more? Can you work part time and still get some pension or do you have to totally give up work to earn your pension?

Sorry for all the questions my worry is I have to work beyond 68..

[nomorepanic]

Google it and look at the Gov website

[MyNameIsTerry]

There are different types of pensions, phil. The one we all get (as long as we meet the minimum criteria) is the state pension which you mention. That is taken from your NI over a number of years up to a maximum level and then the contributions stop. Then when you hit state retirement age you can claim it back. They just pay you the set amount the government of the time has agreed hence it can change over the years.

Beyond that you have private pensions and company pensions. There are different types but most people are in standard types and not the salary ones.

With your company pension you put in x and your company matches it plus the government had the 20% tax into your pot. The government tax your pension when you claim it back. You can add larger sums through the year with some schemes up to a value the company has set with their pension provider with some.

With a private pension it works exactly the same accept it is between you and the pension provider/broker. You don't get the matching the company do but you get the 20% tax added to the pot to top it up. The most common is called a stakeholder pension. Because you control this you can change things more easily and deposit bulk amounts more easily to top it up.

When you reach retirement you stop contributing. Some choose to work beyond retirement and continue to pay in so their pension goes further, and is returned at a higher rate, once they do retire which is because they are reduced the number of years the pay out is to be spread.

So, when you retire you traditionally buy what us called an annuity. Think of it like a savings account. It pays you out a sum until it runs out. This tops up your government pension which is why they advise to not rely solely on that if you want to have something similar to what you are used to in your salary. These days you can also take a bulk amount out up to a certain % too but this reduces the pot your annuity makes up so your payouts are less. Tax also applies on annuity payouts.

AS to your question about how people live on much less at retirement it's because they tend not to have mortgages, kids, cars, holidays, buy lots of stuff, etc.

Yes, you can work and claim but it could affect how much tax you pay. Remember that your pension may be under the minimum threshold for tax or in a lower band so your salary may push you over. Obviously that means you only pay tax on what exceeds the threshold though. It could affect any pension top ups the government give you though e.g. pension credit.

[Carnation]

Phil, pensions will depend on a persons circumstances, but there is much literature on the Gov Site, like Nicola has already said.

[phil06]

There are different types of pensions, phil. The one we all get (as long as we meet the minimum criteria) is the state pension which you mention. That is taken from your NI over a number of years up to a maximum level and then the contributions stop. Then when you hit state retirement age you can claim it back. They just pay you the set amount the government of the time has agreed hence it can change over the years.

Beyond that you have private pensions and company pensions. There are different types but most people are in standard types and not the salary ones.

With your company pension you put in x and your company matches it plus the government had the 20% tax into your pot. The government tax your pension when you claim it back. You can add larger sums through the year with some schemes up to a value the company has set with their pension provider with some.

With a private pension it works exactly the same accept it is between you and the pension provider/broker. You don't get the matching the company do but you get the 20% tax added to the pot to top it up. The most common is called a stakeholder pension. Because you control this you can change things more easily and deposit bulk amounts more easily to top it up.

When you reach retirement you stop contributing. Some choose to work beyond retirement and continue to pay in so their pension goes further, and is returned at a higher rate, once they do retire which is because they are reduced the number of years the pay out is to be spread.

So, when you retire you traditionally buy what us called an annuity. Think of it like a savings account. It pays you out a sum until it runs out. This tops up your government pension which is why they advise to not rely solely on that if you want to have something similar to what you are used to in your salary. These days you can also take a bulk amount out up to a certain % too but this reduces the pot your annuity makes up so your payouts are less. Tax also applies on annuity payouts.

AS to your question about how people live on much less at retirement it's because they tend not to have mortgages, kids, cars, holidays, buy lots of stuff, etc.

Yes, you can work and claim but it could affect how much tax you pay. Remember that your pension may be under the minimum threshold for tax or in a lower band so your salary may push you over. Obviously that means you only pay tax on what exceeds the threshold though. It could affect any pension top ups the government give you though e.g. pension credit.

Wow seems confusing and yes I did look on the government site but don’t get it really. Is there no way to work out what I would get? Says I don’t retire until 68 how could I go about an earlier retirement? Would I perhaps have to work less days and semi retire and build up some savings?

[Carys]

See a pension advisor ?

[nomorepanic]

yeah just get advise - not a thing we can advise on

[MyNameIsTerry]

Read the guides on the Pension Advice Service site and Money Saving Expert. Between them they explain far more than .gov does.

Yes, there is a way to check what you will receive. Currently it's what the government state is the state pension for those born after a cut off date from when it changed. Therefore you will be the same as most of the population but it will change with inflation so the closer you get to retirement you will see it has gone up otherwise it won't be worth as much since cost of living increases each year.

If you Google for the pension calculator for .gov you can create an account in a matter of minutes through the government's portal service. On this it will tell you how much you will be paid based on your years accrued. You need to work at least ten to achieve the bottom rate and it stops accruing long before hitting retirement age (if you worked all your life). You can check if you are missing any credits and top them up too.

For private pensions there are many calculators on the internet. The one on the Money Advice Service website is a good starting place but there are more detailed ones out there too.

[MyNameIsTerry]

Wow seems confusing and yes I did look on the government site but don’t get it really. Is there no way to work out what I would get? Says I don’t retire until 68 how could I go about an earlier retirement? Would I perhaps have to work less days and semi retire and build up some savings?

Early retirement means you need a lot of money to cover the gap between then and the state retirement age (and don't forget it needs to run beyond that if you don't want to stick to the basic state pension).

The internet calculators allow you to change retirement ages around to work it out but make sure you don't include the state pension. So you will need to do the calculation again from state retirement age to see how it increases at this age.

Honestly though early retirement is beyond most people. It basically comes down to two things 1) you are well off through your career or other means e.g. rich or 2) you got a state early retirement pension due to a civil service occupation e.g. teaching, police, etc. But things have changed and many from option 2 will go onto other careers (like police will) or continue to work full or part time (some teachers go into supply teaching) to supplement their income. The world has changed from when such state pensions provided for living.

For most of the population early retirement is a mere dream.