Pension Freedoms

Pension freedoms - July 2019

Now, more than ever, it is vital that we all take responsibility for funding our own retirement. But what if you’ve reached your 50s and you have little or no savings to speak of? Don’t panic. You can still build a decent pension. Here’s how:

Make the most of free money
The good news is that there’s still time to build a decent pension pot when you are in your 50s. For starters, many people of this age are at the peak of their career earnings, so can make the most of the tax relief available when contributing to their pension. You can put as much as you want into your pension, but there are annual and lifetime limits on how much tax relief you get on your pension contributions.

If you’re a UK taxpayer, the standard rule is that you’ll get tax relief on pension contributions of up to 100% of your earnings or a £40,000 annual allowance – whichever is lower.

Any contributions you make over this limit won’t attract tax relief and will be added to your other income and be subject to Income Tax at the rate(s) that applies to you. However, you can carry forward unused allowances from the previous three years, as long as you were a member of a pension scheme during those years.

But there is an exception to this standard rule. If you have a defined contribution pension and you start to draw money from it, the annual allowance reduces to £4,000 in some situations. The annual allowance is also reduced if you have an income of over £240,000, including pension contributions.

Track down your workplace pensions
Launched in May 2016, the Pension Tracing Service is a free-to-use government initiative that searches a vast database of pension schemes to help you find a lost pension from companies you almost forgot you worked at, as well as private pension providers.

All you need is the name of the employer (or the pension provider) and the dates you worked there, and the system can locate it. What it can’t do is tell you if you do or do not have a pension there, or how much the fund is worth. However, with the details it provides, it can help ‘reunite’ you with pensions you may have forgotten you had.

Steps to take to trace your old pension:

Pension consolidation
If appropriate to your particular situation, having all your pension savings in one place could mean you’re clearer about your financial position, giving you the option to make more informed decisions. If you’ve had more than one job during your career, you could have more than one pension pot.

Pension consolidation means bringing a number of pension pots together into a single pot. This process will not be right for everyone, and it is essential to obtain professional financial advice before moving any pension monies.

You will need to compare the benefits from your current pension with the estimated benefits of your new pension, including any guarantees that you may be giving up or any exit penalties that may apply if you transfer out of a scheme. Transferring your pension may not be the best option for you.

If appropriate, consolidating your pension monies may reduce the money spent on multiple charges and could make managing one pension easier than looking after several. Instead of receiving statements from different providers at different times, you’ll only receive one statement that shows all of your pension savings.

By combing all of your pension pots together, you can also quickly and easily see how much you’ve got, if you’re invested in the right funds and how your pension is performing. This single view could make it easier to see if you’re on track to meet your retirement goals and to make changes if you need to. It’s important to keep a close watch on the pension savings you’ve got, and consolidating them could mean you don’t lose track of your savings.