Pension Guide

The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.

Tax treatment varies according to individual circumstances and is subject to change.

Types of pensions

State Pension-This is something most people can claim when they reach State Pension Age. To find out your State Pension age use the calculator on the GOV.UK website. The amount of State Pension you get depends on your National Insurance record and how many qualifying years of NI contributions you have.

Those of you who don’t have enough qualifying years to be able to get a full state pension may be able to make up the gaps in your National Insurance contributions by paying voluntary contributions. However you should be aware there are time limits for paying these, more information on this can be found on the GOV.UK website.

Personal Pension-Anyone can have a personal pension, it is quite simply a way of saving for your retirement. You would make regular payments into your pension fund which is invested with the aim of increasing the amount in it before retirement. Whilst many people have both personal and workplace pensions those who may want to consider a personal pension are:

  • Those who are self employed or not working
  • Those who are not eligible for automatic enrolment into your employer’s pension scheme


Stakeholder Pension-This type of pension works very much like a personal pension with the following exceptions:

  • For the first 10 years the pension provider cannot charge more than 1.5% of the funds value for administering the pension, then 1% thereafter
  • There is a minimum contribution which is set at £20 per month but you can pay in as much as you want to above this amount
  • You can choose how and when you pay into your fund; there is no need to make regular payments
  • If you choose to move your fund to another stakeholder scheme or pension at any time there is no penalty to do this

If you want a lot of flexibility in how much you pay and when you pay into your pension a stakeholder pension might be a good option for you.

SIIPS (self invested personal pensions)

Unlike personal, workplace and stakeholder pensions where your investments are managed for you, SIPPs give you the freedom to choose and manage your own investments. Because of the risks involved in self management SIPPs usually have higher charges than other pensions.

SIPP providers include fund managers, pension consultants and insurance companies.


Tax relief on pensions

Subject to an annual allowance, if you are under 75 you will get back the tax you have paid on all contributions. Usually this will go straight into your pension pot.

You get 20% tax back from the Government unless you are a higher rate taxpayer. Those who pay a higher rate of tax can claim an extra 20%, top-rate taxpayers an extra 25%. Those who are in a workplace pension may not need to reclaim any tax as your employer may simply deduct less tax from your wages.

Please note, if you don’t make a reclaim the tax won’t be paid. We would advise people to check if you are in a higher tax bracket. More information can be found here.

How much should you put into a pension fund?

The earlier you start the longer you will have to build up your pot. The sums are therefore quite easy, the later you start the more you will need to contribute each month. A guide to how much really depends on what you as an individual require from retirement, but as a guide for a comfortable retirement work on the following: Take your age when starting a pension fund and halve it. This is the % of your monthly salary before deductions that is recommended to be put into a pension pot. So an example would be: Current age 24,halved would be 12, so 12% of monthly salary into your pension. The Money Advice Service has a pension calculator you can try.

It’s really important to keep contributing and not to miss a month. As your pay rises make sure you increase your pension contributions accordingly to ensure you don’t fall behind.


Not every company offers a workplace pension scheme and auto-enrolment is addressing this by making it law for employers to offer their staff a pension scheme. By 2018 all employers will have to contribute to their employees pensions. Auto-enrolment started with just larger companies but in two years all employers must offer this.

It isn’t compulsory for employees to join but as it’s an opt-out scheme you will pay into it automatically unless you choose to opt-out. But why would you want to opt out? With auto-enrolment you have the added bonus of both your employer and the government making contributions to your pension.

You can access this pension when you reach your state pension age but until that time it will be held for you by a pension provider.


How much will I need to pay in to my work pension?

It is a % of your pre-tax earnings, so the more you earn the more you will pay in. Here are the minimum contributions:

Date                                                      You                   Employer                    Total

Until 30 Sept 2017                              1%                           1%                            2%

April 2018-30 Sept 2018                    3%                           2%                            5%

April 2019 onwards                            5%                            3%                            8%

And don’t forget, you will also get tax relief from the government.