how do pensions work?

scousedave

Hello.
I'm due to see a pensions advisor soon but after some background info.
If I pay into a private pension, say £100 a month do the government add to it?
If I withdraw in 1 lump sum will I pay tax? Not sure as I will have already paid tax on money already invested???
Thank you

atush

1, yes.
2, yes- 75% is taxed, 25% tax free. the 75% is added to all income int hat year so you have to be careful to not put your income into HRT or beyond. You could in theory pay not tax at all, if you withdraw the pension more slowly using your PA.


What to you mean by an Adviser? Someone from work? Your bank? Or an IFA?

Does your employer have a pension scheme?

p00hsticks

scousedave wrote: »

If I withdraw in 1 lump sum will I pay tax? Not sure as I will have already paid tax on money already invested???
Thank you

If it's set up properly, then the chances are that you WON't have paid tax on the money you invest - if it's a pension run by your employer, then usually your pension contribution will be taken out of your salary before any tax is deducted - and your employer will make a contribution themselves.

If it's a personal pension that you organise yourself, then you can get tax relief on the contributions from the government added to the pension.

Because you get tax relief on the way in, then you'll pay tax (on 75% of the pension) on the way out if you take it as a lump sum.

dunstonh

I'm due to see a pensions advisor soon but after some background info.

What do you mean be pension adviser?

If I pay into a private pension, say £100 a month do the government add to it?

Depends what you mean by private pension. There isn't a product called that. However, if you mean personal pension then you would normally refer to the contribution in gross terms. So, £100 going into the pension would be a direct debit of £80 with HMRC adding £20 on top.

There are other methods which can see the tax relief handled in different ways but the end result is that the gross amount remains at £100.

If I withdraw in 1 lump sum will I pay tax?

Almost certainly. Your personal allowance is the same in retirement as it is when you are working. So, anything you withdraw that is over the personal allowance is taxed.

Drawing as a single amount in one go is only typically used for trivial funds (small value). Most would withdraw the money in the form of an income or periodic ad-hoc withdrawals over time.

Not sure as I will have already paid tax on money already invested???

No you wouldnt as paying into the pension gets tax relief (so returns the tax you paid). It has tax free growth (no capital gains tax) and is outside of the estate for IHT purposes. So, the only tax issue with pensions that most will need to worry about is income tax when drawing on it as income.

yelf

I think pension advisers advise on pensions. You will tend to find employers refer to a pension adviser, whether they are an ifa or Eb consultant.

dunstonh

I think pension advisers advise on pensions.

There is no such role. As you say, it can mean many things. I was trying to ascertain who was giving the "advice". i.e. workplace scheme administrator, IFA, FA, sales rep etc.