Pensions can be quite daunting for many people. Not only is there a whole bunch of jargon and terminology to get your head around, there is also the fact that your future is somewhat dependent on them.
Below you will find some of the most common pension questions with answers.
If you have a pension question that isn’t on the list, you can either contact us directly to ask, or you can pop the question in the short form at the bottom of the page. We’ll then create a response and add it to this page.
Let’s get started with the pension questions and answers.
Why Is There No Charge For Your Service?
Oracle Pension Review aims to provide you with a comprehensive overview of how your pensions are performing. The service we provide will gather all the necessary and relevant information about the current state of your pensions. It looks at how they are performing and how well they are likely to meet you retirement goals.
All of that information is then cross referenced with other options that are available to you and that could offer you better returns. If you choose to follow any of the alternative options we have found for you, we will be paid a commission by the relevant pension administrator.
If you decide to leave your pension pots where they are, you won’t be charged anything for the pension review and report you receive.
You are wise to be wary because, sadly, rogue organisations do exist that look to exploit vulnerable and unsuspecting people.
What Are Workplace Pensions?
A workplace pension is a pension that is arranged by your employer. It is a way of saving for your retirement.
Workplace pensions sometimes go by other names, such as:
- Occupational pensions
- Works pension
- Company pension
- Work-based pensions
Once you are automatically enrolled into a workplace pension, not only will you pay into the scheme, but so too will your employer and the government.
You might pay £40 per month into your workplace pension. In addition to your £40, your employer might put in £30. On top of that, the government adds £10 tax relief.
So the total amount being paid into your workplace pension each month would be £80.
How Do Workplace Pensions Work?
When you get paid, a percentage of your pay is automatically put in to your pension scheme.
In most cases, your employer will add money into your pension fund and you will also get tax relief from the government.
Am I Entitled To A Workplace Pension?
A new law means that all employers are obliged to automatically enrol their workers into a workplace pension scheme, if they the meet the following criteria:
- They are aged between 22 and State Pension age
- They earn more than £10,000 a year
- The work in the UK
If you meet this criteria, your employer should automatically enrol you into the workplace pension scheme. This is called ‘automatic enrolment’.
If you have questions about your particular company’s pension scheme, you should speak with the relevant department within your company.
Is There More To Know About Workplace Pensions?
The main points regarding workplace pensions have been covered above. If you have further questions, you can go to the government website a learn more here.
What Is Pension Tax Relief?
The government wants to make sure each person has made provisions for their future. The more people that are equipped to look after themselves in retirement means less burden on the government by way of ‘hand outs’.
In order to entice people to save for their future, the government gives tax relief on any contributions that you make.
If you invest £80 per month into your pension, the tax man will automatically add an additional £20 per month. So your total monthly contributions will be £100, even though only £80 came from you.
How Much Tax Relief Will I Receive?
Tax relief is dependent on your income and tax bracket. Simply put, the higher your rate of tax, the more you could receive in the form of tax relief.
As an example:
- Let’s suppose you contribute £8,000 per year into your pension.
- The government then adds £2,000 in the form of tax relief. So your total yearly contributions are now £10,000.
- If you are a higher or top-rate taxpayer, you can then claim back even more via your tax return.
- If your rate of tax is 40%, then paying £10,000 per year into a pension could effectively cost you as little as £6,000.
- If your rate of tax is 45%, then you could pay as little as £5,500 on that £10,000 per year pension.
What Is A Defined Contribution Pension?
A defined contribution pension plan is a type of retirement plan in which the employer, the employee or both make regular contributions.
Individual accounts are set up for individuals participating in the scheme. The benefits are based on the amount of contributions to the account made by the employer or the employee, or both.
In addition to contributions, earnings made through investments also affect benefits. Only employer contributions to the account are guaranteed, not the future benefits. In defined contribution plans, future benefits fluctuate on the basis of investment earnings.
Under this type of plan, the employee contributes a predetermined portion of his or her earnings — usually pretax — to an individual account. All or part of those contributions are then matched by the employer.
What Is A Defined Benefit Pension?
A defined benefit pension plan (also known as a final salary pension) is a type of pension plan in which an employer promises a specified monthly benefit on retirement. The amount of benefit is predetermined by a formula based on the following:
- The employee’s earnings history
- The employee’s length of service and their age
Defined benefit pension plans have traditionally been provided by the government, public entities and large corporations. They have sometimes been used as a part-alternative to salary for compensating workers.
The reason these pension plans are called ‘defined’ is because the benefit formula is defined and known in advance.
What Is Income Drawdown?
Income drawdown is a way of using your pension pot to provide you with a regular income in your retirement. The pension pot is reinvested in funds specifically designed and managed for this purpose.
Unlike an annuity, the income you receive from drawdown isn’t guaranteed for life. The amount of income you get from a drawdown will vary, depending on the performance of the funds it is invested in.
What Is An Annuity?
An annuity is basically a special type of insurance policy that you take out close to retirement. Its purpose is to provide you with a monthly income in your retirement years.
Typically, an annuity will provide you with a fixed income every month for the rest of your life. The amount you receive will be dependent on several factors. The factors include:
- How much you invested in it to begin with
- Your life expectancy
- The annuity provider that you choose
Annuities are generally fixed once they have been taken. So it’s really important that you choose wisely because once you do choose, you’re unlikely to be able to change it.
Do You Have A Pension Question Not Answered Here?
If you have a pension question that hasn’t been answered in, you can get in touch and we will help you out. You can either call for free on 0800 031 6978, of you can pop your details into the short form above and we will call you.