A financial expert at Saxo answers all your questions on pensions and how they work as Pension Awareness Week celebrates its tenth anniversary.
As the UK continues to battle a cost of living crisis many are left wondering what that means for their pensions and how it could impact them.
If you’re unsure on how your pension works, if you have one and how much you can pay in, Saxo is on hand to answer your most asked questions, from how pensions work to what is auto-enrolment.
Here are the answers to the public’s 10 most googled questions according to SEO tool, Ahrefs.
- What is a pension?
A pension is a long-term savings scheme designed to give you financial support after retirement and which you get tax relief on. A state pension is the amount of money paid by the government towards your pension built up by making National Insurance contributions during your working life. A workplace pension is a scheme you may be enrolled into by your employer whereby you and your employer will contribute a proportion of our salary.
- How do pensions work?
State Pension age is currently 66 years old for both men and women in the UK, meaning you will receive your pension then. Most workplace pension schemes set an age when you can take your pension, usually between 60 and 65. In some circumstances you can take your pension early. The earliest is usually 55.
- How much can you pay into a pension?
In the UK the amount you can contribute to your pension and receive tax benefits depends on various factors, including your age, income, and the type of pension scheme you have. The tax relief you get on your pension depends on what you earn each year.
- What’s auto-enrolment?
Auto-enrolment requires all employers to offer employees a pension and automatically enroll them in a scheme. Under auto-enrolment, total contributions must be at least 8% with the minimum employer contribution being 3%.
- When do pensions go up?
The state pension is increased on the first Monday on or after April 6 and is adjusted in line with the cost of living, as set by the Government. In April 2023, the annual rise increased more than 10%.
- What is the triple-lock?
The ‘triple lock’ is a safeguard that applies to the UK state pension, to ensure it doesn’t lose value because of inflation. The scheme ensures that the state pension rises in line with whichever is the highest from 2.5%, average wage growth between May and July or inflation.
- What is consolidating my pension?
Pension consolidation means combining all (or some) of your pensions into one pot. If you have several employers over time you are likely going to have pensions in different places. There are advantages and disadvantages to both so it is best to seek advice before combining your pension.
- Do I get a pension if I’m self-employed?
If you’re self-employed, you’ll be eligible for the State Pension as long as you’ve paid at least ten years of National Insurance contributions; however you will not automatically be enrolled into a workplace pension.
- How to find an old pension?
Most pension schemes will send a statement each year so it’s worth checking to see if you have any old paperwork with the name of your pension scheme or provider and contact them. To find a workplace pension you should contact your previous employer.
- What happens to my pension when I die?
State Pensions will normally stop being paid when you die but a beneficiary could inherit some of the money depending on your age and contributions made. What happens to your workplace or private pension also depends on the scheme and whether you’ve begun receiving your pension benefits. A defined benefit pension may be paid to a spouse or partner.