UK Pensions

UK Pension FAQ

Basic state retirement pension

Most of us will get a basic State Pension. This is based on National Insurance contributions you have paid throughout your working life. The State Pension age is 65 for men and 60 for women. This will go up to 65 for women retiring between 2010 and 2020 and to 68 for men or women retiring from 2024.

SERPS (State Earnings Related Pension Scheme)

Between 1978 and 1988 all employees had to contribute to this additional state pension. After 1988 it became possible to opt out and in 2002 it was replaced by the state second pension. SERPS was originally intended to provide an extra pension equivalent to 25 per cent of your earnings (within certain limits) during the 20 best years of your working life, but it was later reduced to 20 per cent of these earnings averaged over your whole working life.

State second pension

The state second pension (S2P) replaced SERPS in April 2002; it is very similar to SERPS but provides more generous benefits to low earners.

Stakeholder pensions

Introduced by the government in 2001 to make pensions cheaper and more accessible, stakeholder pensions can be taken out direct or through an employer. The minimum investment is £20 per month and there are no penalties for stopping contributions or transferring the fund to another pension company. Charges are capped at 1.5 per cent a year. The amount of pension you get will depend on the size of your pension fund and annuity rates when you retire.

Self Invested Personal Pensions (SIPPs)

These are pension plans which enable investors to choose their own investments, typically from a range of insurance funds, unit trusts, investment trusts and shares. They can also be used to buy commercial property and various other investments. Click here for more on SIPPs.

Qualifying Recognised Overseas Pensions (QROPs)

Anyone with a UK pension scheme who now lives overseas as an expatriate, or is planning to leave the UK, can transfer their existing pension provisions into a QROPS (Qualifying Recognised Overseas Pensions Scheme). Transferring your existing funds to QROPS brings several advantages including:

  • No need to purchase an annuity EVER
  • Access to a lump sum upon transfer
  • Leave your unspent pensions to your spouse & children free of IHT
  • Enjoy greater flexibility and investment freedom
  • Low cost charging structure
  • Possibility to receive your pension income with zero tax deducted

Our QROPS Expert pension advisers are on hand to answer all your queries and give you their professional, no obligation advice.

Final salary occupational pension scheme

Provided by an employer, this type of scheme (also referred to as a defined benefit scheme) promises a pension at retirement which is a fixed proportion of an employee's salary. Employees must contribute but employers must pay the rest. For many companies the cost of these schemes has become too great in recent years and a large number of final salary schemes have closed down.

Money purchase occupational pension scheme

A more common type of company pension scheme these days (also referred to as a defined contribution scheme) which is funded by fixed contributions from employees and employers. The amount of pension provided at retirement depends on the size of the employee's 'pot' and annuity rates at the time.

What happens to pensions after death?

If you die before you retire your pension fund will normally be paid to your beneficiaries.

To avoid inheritance tax after death you should ensure you have put your pension fund "in trust". If you die after retirement what happens to your pension payments would depend on the deal you did for your annuity.

How much should you save?

Most people say they hope to retire on two thirds of what their salary is at retirement.

To achieve this depends not only on how much you save but also on how well your fund managers perform. But, regardless, the sooner you start saving the better. The later you leave it the higher your contributions would have to be

Cost of delaying your pension

Research showed a 25 year old starting a pension and investing £100 a month until 65 would eventually have a fund big enough to finance a pension of £25,000 a year. However if s/he waited until the age of 30 to start saving, at the same rate, their pension would be worth just £15,400 a year.

I have more than one pension, can I put these together?

You may be able to combine your different pensions into one overall fund to maximise the potential annuity benefits you could get. There will be an impact in doing this and it may not be in your best interests to transfer so we recommend you speak to a financial adviser first.

Combining pensions can depend on the type of schemes you have. Ask if you are able to combine the various funds you have when getting quotations.

What is a final salary scheme?

A final salary scheme is also known as a defined benefit pension scheme. This provides a pension based on your final salary and how long you've been in the scheme. For example, an employer may offer 1/60 of your final salary for every year you've worked there.