Pensions - where to start?

Touser

Hi,

I'm 26 and still haven't got a pension yet. I want to start a Pension but I haven't got a clue how to judge which is the best on the market and how you go about choosing between the different Pension Schemes on offer.

I'm not sure whether I need to get a company or private pension or if I can have both. Also, I heard the Government has set up some kind of Pension scheme as well.

Also, because I have been late setting up a Pension, when I finally get one can I pay a lump sum in to make up for the years that I have lost by not having one?

If any one has any information regarding Pensions or details of any websites that may help, I would appreciate it.

Thanks.

EdInvestor

Hi Touser

Actually almost certainly you have 2 pensions already: the basic state pensions plus the second state pension S2P, paid through your NI contributions.

Get a forecast of how much you will get for them here:

https://www.thepensionservice.gov.uk

It may be higher than you think ;)These 2 pensions should be the basis of your planning.

Secondly, does your company offer a pension and match your own contributions? Check this first as this is far and away the best bet.Ask the HR department what's on offer and come back and let us know.

It's possible to pay lump sums into pensions right up to retirement, so there's no need to worry about being late, you're not.

Touser

Thanks for the advice EdInvestor,

I'm currently unemployed at the minute but as soon as I'm back in employment I will be contacting the HR department to see what Pension, if any, is on offer and will repost my findings on here.

plonkee

If you have some cash that is truly going spare, you can start a personal pension / stakeholder / SIPP now (contributing something like up to £2808 before tax relief) but once it goes in it can't come back out again so you'd need to be very sure that you don't need it.

jamesd

Unless your employer matches pension contributions a good route is to use your stocks and shares ISA allowance instead. Each time you're in a job where the employer will match your pension contributions, accept that offer.

You can have an unlimited number of different personal and workplace pensions in addition to the two state pensions. When working you can contribute up to your full income (subject to a limit of about a quarter of a million) into pensions.

Since the ISA route is very flexible you can reasonably exploit that flexibility and use ISAs until you're a higher rate tax payer and can get 40% tax back instead of 22% or until some other reason makes using a pension more appropriate.

Both ISAs and pensions get tax breaks: the ISA isn't taxed when you take the money out, the pension is. The pension gets the tax rebate but after the tax allowances of 10,000 or so over 65 when retired it's taxable, so it's good to get a total pension of 10,000 then have the more flexible ISA money.

Sobraon

The only thing I can add to jamesd's advice (which I wish I had had 25 years ago!) relates to 'government' backed pension schemes (e.g. teachers, police, NHS etc.).

It is my understanding that if you retired and became resident overseas in a country with low income tax rates (e.g. Cyprus) then you are still taxed on your 'government' pension as though a UK resident. You are not told this at the beginning. On the other hand 'government' pensions are the most generous available to most people it seems.

Andy_L

However that's generally the case for private sector pensions as well, unless there's a suitable tax treaty arrangement. Cyprus is one of the countries where the appropriate treaty allows public sector pensions to be taxed locally.

http://www.hmrc.gov.uk/cnr/uk_gov_pensions.htm

EdInvestor

Sobraon wrote: »

The only thing I can add to jamesd's advice (which I wish I had had 25 years ago!) relates to 'government' backed pension schemes (e.g. teachers, police, NHS etc.)It is my understanding that if you retired and became resident overseas in a country with low income tax rates (e.g. Cyprus) then you are still taxed on your 'government' pension as though a UK resident. You are not told this at the beginning. On the other hand 'government' pensions are the most generous available to most people it seems.

AFAIK the rule is that Givernment pensions are paid and taxed in the UK for those resident abroad, except in a few cases such as Cyprus (which has a 5% tax rate for pensions) and Australia.

Private sector pensions can usually be paid and taxed in the country of residence if this is advantageous.

There may of course be other tax wrinkles which negate the low pension rate (I believe Cyprus has a high defence tax), and the rate on pensions may not be the same as other types of retirement income (eg dividends, which are effectively tax free to most UK retirees. )