Pensions

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Are you involved in a workplace pension? Unless you are self-employed or work as a contractor, you are likely to be already enjoying membership of a workplace pension scheme.

The good news about pensions is that the government has created an environment to maximise the number of pension participants in the UK. The bad news is that so many people still do not understand what pensions are or how they work.

A pension is essentially an investment portfolio that workers use to set money aside for the future. Pensions are strictly regulated in order to mitigate member losses as much as possible.

Main Pension Categories

Almost every pension in the UK can be put under one of two main categories: defined contribution schemes and defined benefit schemes. Here is a brief explanation of each:

  • Defined Contribution – A defined contribution pension defines the contributions made to the scheme over time. The member will contribute so much from weekly pay; employers contribute a certain amount as well. The eventual payout is determined by the value of the total pension pot, which can change over time according to investment performance.
  • Defined Benefit – The defined benefit pension is considered more attractive because members are guaranteed a specific payout at retirement regardless of contributions and investment performance. Because these pensions are considerably more expensive on the part of employers, they are gradually being phased out in the private sector.

The pension reform measures that were enacted in 2015 affected defined contribution and the defined benefit pensions in different ways. If you participate in a defined contribution scheme, reform is much more beneficial to you. Be sure to click on the 'PENSION REFORM' tab to the right to learn more about reform.

Different Kinds of Pensions

Pensions are similar to other types of investments in as much as consumers have many options. The average workplace offers only one pension for employees, but workers are not required to participate in it. Any worker can always opt out in favour of investing in a private pension through a bank, insurance company, or another service provider. Below is a short list of the most common types of pensions:

  • Workplace Pension – This is the standard pension offered by employers to their employees. The law now requires every employer in the UK with a minimum number of workers to automatically enrol eligible workers in a pension although they then have the option to opt out.
  • Civil Service Pensions – These are similar to workplace pensions in that they are offered by employers. However, being government-sponsored schemes means they are administered a little bit differently.
  • Military Pensions – HM Forces have their own pension schemes entirely separate from workplace and civil service pensions. The military pension system has been undergoing a transformation over the last several years, so options vary among current and former military members.
  • Personal pension/Stakeholder pension – Personal pensions and stakeholder pensions are types of savings schemes which allow you to accumulate a sum of money in a tax efficient way to provide an income or lump sum in retirement.
  • SIPPs – Known formally as 'self-invested personal pensions', SIPPs are private pensions consumers establish by themselves. The advantage of the SIPP is that it gives the investor total control over how money is allocated, invested, and accessed.
  • QROPS – The Qualifying Recognised Overseas Pension Scheme is a pension scheme in another country that is recognised by the UK as meeting our standards. People choosing to retire overseas frequently transfer into a QROPS for tax purposes.

The last type of pension not mentioned in the above list is the State pension. Every UK worker who has put in a minimum of 10 years of work, combined with National Insurance payments, will receive the state pension at retirement. The state pension will not pay enough money to sustain the average pensioner, but it is a good supplement to a workplace or private pension.

If you would like to know more about pensions and pension investing, we invite you to contact us right now to book a pension review call. We want to help you make the most of your retirement through wise pension investment!

It might be difficult for someone who pays diligent attention to personal finances to understand how others could lose track of pension pots.

However, it happens more often than you might think. Lost pensions now account for billions of pounds of unclaimed money in the UK. Some of the pots counted as lost could make a significant difference in the lives of those who own them.

What is a lost pension? It is a pension that a consumer actively invested in at one time but has since been forgotten due to not having used it for a number of years. For example, consider a middle-aged worker who began investing through a workplace pension in which he enrolled in his early 20s. Having left that first job just a few years after having started, the worker moved on to a long-term career with another company. He may have long since forgotten that first pension scheme from 20 years ago.

It turns out that the scenario we described is the most common reason lost pensions exist. People simply lose track of their pensions in a day and age when frequent job changes are the norm. You might have one or more lost pensions yourself if you have had multiple jobs over the years.

Finding Lost Pensions

Finding a lost pension is not difficult in principle, but it can be in practice. Those who search for lost pensions rely on a certain amount of accurate consumer information to track down pots that might still be in the client's name. The less information available, the more difficult it can be to find lost pensions. The kinds of information necessary to find lost pensions include:

  • name of the pension saver
  • address at the time of participation
  • employer's name and address.

For the record, searching for lost pensions is not as simple as entering a single name into a database. For example, there are far too many John Smiths in the UK to find lost pensions based on name alone. If you are interested in looking for lost pensions, it would be helpful to have names and addresses of employers you think might have set up pension membership for you, along with your starting and ending dates.

You can use a service like ours or contact the Pensions Tracing Service for help in searching for lost pensions. The advantage of working through us is that we will do all the work for you.

Accessing Lost Pensions

You might be wondering what to do with your money in the event we locate lost pensions for you. The good news is that there are plenty of good choices. Here are the most common:

  • Leave It Alone – A pension scheme that is performing well may be better off being left alone. You can leave funds in a pension for as long as you like under new pension reform rules. Leaving the money alone allows it to continue earning until you are ready to retire.
  • Transfer – Some pension savers prefer to transfer monies from a lost pension into their current workplace pension or a SIPP. This might be done to increase earning power. Combining several smaller pots into one larger pot gives the pension saver more money to put into the most lucrative investments.
  • Trivial Commutation – Under pension reform rules, savers can now take advantage of trivial commutation to combine multiple small pots into a single pot eligible for a lump sum cash withdrawal. However, you must be at least 55 years old to take advantage of this option without tax penalties.

If there were any chance you might have one or more lost pensions out there, you would be wise to enlist a search. Not only could that money help you in the future, but it is your money – there is no reason to forget about it and let someone else take it upon your death.

Let us help you find your money. Contact us now and we will do our best to find lost pensions you may have long forgotten about!

2012 & 2015 government pension reforms to the UK pension system.

Between 2012 and 2015, the government implemented a number of significant reforms to the UK pension system. These reforms were meant to make the current system fairer while encouraging more people to begin participating in pensions. Needless to say, today's workers need to be informed regarding the changes. They also need to know all of the options available to them for saving and accessing retirement income.

It would be impossible for us to detail all the reforms here, so we have put together a brief overview of the three main targets of reform: pension participation, private pension access, and the state pension. Do not be afraid to seek advice from a financial advisor if you don't quite understand how all this works.

Pension Participation

Britons are notorious for being poor savers. This is certainly true in the area of saving for retirement. To help change that, the government introduced something known as 'auto-enrolment' in 2012. The auto-enrolment rules require all employers with a minimum number of workers to not only offer pension schemes but also automatically enrol workers unless they chose to opt out.

Auto-enrolment was phased in slowly in order to give companies time to make plans. The vast majority of companies should have their pension pots in place by the end of 2017. If you have not yet received pension information from your employer, you should see something in the near future. You can always contact your company's human resources department if you think you might have missed auto-enrolment information.

Private Pension Access

The most highly publicised part of pension reform has to do with accessing monies in private pensions. Beginning 6 April 2015, all participants in private pensions – be they workplace, SIPP, or otherwise – are eligible to start accessing funds at age 55. The only stipulation is that individual consumers are subject to the policies of their pension providers. Some schemes are not yet participating in reform.

Under the reform, pension savers can now access their funds in many different ways. Money can be taken as a single, lump-sum payment, gradually withdrawn through one of several drawdown options, transferred to another pension, or left entirely alone to keep on earning. Consumers need to be aware of the taxation policies on pension funds, before deciding on the best way to access money.

State Pension

The state pension is also going through some fairly drastic reforms. To begin with, the government will be gradually increasing retirement age through until 2020 in order to encourage people to work longer. Second, something known as the 'new state pension' goes into effect in April of 2016. This new system is said to be fairer and more easily administered by the government in a way that saves money.

The new state pension, which applies to anyone reaching their state pension age on or after 6th April 2016, pays a flat rate based on age, retirement date, and National Insurance contributions. The second state pension will be eliminated in favour of additional monies added to a pensioner's weekly payments based on years of service after 2016.

Pension reform should be very good for the UK once consumers fully understand their options. However, this could take some time. If you are not familiar with how the changes affect you, we strongly encourage you to seek the advice of an experienced financial advisor. We can help.

Contact us today and book a pension review call with one of our experts. We will help make sense of pension reform so that you can make wise decisions.

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