Pensions - can you lose money?

Chickabee · 15 September 2017 at 11:54PM

Despite being quite money savvy in most ways I have to admit I could write all I know about pensions on the back of a postage stamp.

So I was hoping some pension expert could perhaps give me a little bit of guidance.

I managed to build up about 40k work place pension with my previous employer. Its managed by Willis Towers Watson. To be honest I never paid much attention to the pension or contributed perhaps as much as I should because I've always had the probably misjudged assumption that you never know where that money is going and who knows if you will ever get it when you retire. As a result I've always been more of a saver because I know despite low returns I know I'm not losing money.
However I have since moved to another job and joined their workplace pension. Its through Aviva and doesn't seem to have the same matched contributions that I had with my previous employer. Even still I am contributing monthly. But I wanted to ask someone that knows about pensions:
1. can they lose value - is there a risk element?
2. can I contribute to my 40k pension as well as my current work based pension?
3. if I contribute to the 40k pension do I also get tax relief on my contribution or would it be deducted from my salary after tax as a private contribution?

Thanks for any guidance

xylophone · 16 September 2017 at 12:01AM

Is the WTW administered pension a deferred defined benefit scheme?

The Aviva workplace pension - this?

https://www.aviva.co.uk/business/workplace-pensions/auto-enrolment/contributions/

Chickabee · 16 September 2017 at 12:16AM

Thanks for responding - just checked the WTW pension and its about 44K and is called a Lifeplan investment and refers to Defined Contribution.

As regards the current workplace one I;, not sure where I plucked Aviva from - its actually a Legal & General pension

ricky_v · 16 September 2017 at 12:59AM

Defined Contribution usually carry an element of risk as your contributions and your employer's contributions go into stocks/shares and/or bonds. You should beable to put your entire pot into purely a cash fund as opposed to the riskier stocks/bonds however inflation will devalue your pot over time.

As a result I've always been more of a saver because I know despite low returns I know I'm not losing money.

Beaware of inflation, usually inflation is more than low returns, which erodes your puchasing power over time. Don't forget the tax benefits of pension contributions. If you're in your early 50's then as much as possible should be going into your DC pension as you'll enjoy the 25% tax free lump sum in only a matter of a few years

xylophone · 16 September 2017 at 1:08AM

WTW would be able to tell you whether the scheme is open to new contributions - if it was a group pension scheme it may not be. (Like this? https://www.basf.com/documents/uk/UK-Pensions/Forms/Inv%20Instruction%20Form%20new%20DC%20mbrs%20BandW.pdf)

It may be possible to transfer it to your current pension scheme or to another personal pension scheme where you can continue to contribute.

Are you currently with RBS/Williams and Glyn?

https://rbs.tbs.aon.com/RBS/media/default/PDFs/Current%20Pension%20Plan/Pensions_Explained_181016_2.pdf

Re tax relief

http://www.scottishwidows.co.uk/Extranet/Literature/Doc/FP0491

https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief

Money_Help · 16 September 2017 at 8:04AM

The riskiness of your pensions will depend how they are invested. Investment into cash, gilts and bonds will be low risk and stocks and shares will be higher risk.

You can contribute to as many pensions as you like as long as the total gross amount (after tax relief added) contributed by you and your employer does not exceed £40k. Your personal contributions cannot exceed 100% of your gross earnings.

Chickabee · 16 September 2017 at 9:46AM

Are you currently with RBS/Williams and Glyn?

Yes joined RBS group recently

Just turned 40 ( still trying to cope with that!) so I still hopefully have a good few years to get money into a pension.

If you want to pay into more than one pension how do you get the tax relief on your private pensions. The workplace pension takes the contribution from my salary before tax/ni. Can private pensions deduct it from your pre-tax salary or does it work differently?

Linton · 16 September 2017 at 9:50AM

Chickabee wrote: »

...
I wanted to ask someone that knows about pensions:
1. can they lose value - is there a risk element?
2. can I contribute to my 40k pension as well as my current work based pension?
3. if I contribute to the 40k pension do I also get tax relief on my contribution or would it be deducted from my salary after tax as a private contribution?

Thanks for any guidance

1) Investments in pensions can lose money. Over time, assuming the investment choice is sensible, the chance of a loss decreases to the point where it could only occur following a global economic catastrophe where any other financial arrangement including cash could be at risk as well. So you need to be looking at 5-10 years investing as a minimum.

As others have pointed out cash savings have a greater chance of long term loss of real value because of inflation.

2) You can contribute to as many other pensions as you like. Many employer schemes do not allow you to contribute if you are no longer an employee.

3) If you pay taxed income into a pension HMRC directly add in the 20% tax you paid to your pension. So to get £1000 into a pension you actually pay in £800. It's the £1000 which counts against the pension contribution limits. Higher rate tax is paid to you either directly or through a change in tax code.

AlanP_2 · 16 September 2017 at 9:59AM

If your workplace one is being done as Salary Sacrifice so you save the Tax & the NI then it would be most beneficial to pay more into that.

PP investments out of taxed income attract tax relief but you can't get the NI back.

xylophone · 16 September 2017 at 9:59AM

The workplace pension takes the contribution from my salary before tax/ni.

"Net pay"

The other method of giving tax relief is "relief at source"

Have you read the links on tax relief posted in post 5 above?

Had you explored the possibility of transferring your WTW into your L&G?

zagfles · 16 September 2017 at 10:30AM

xylophone wrote: »

"Net pay"

"Before tax & NI" will be salary sacrifice. "Net pay" is where conts are taken before tax but after NI.

Pensions - can you lose money?

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