How does pension work?

NOVAMET21

Hi


I'm trying to understand how pension works and below are some questions I want to know:


1. Many of us have several jobs during our working life and with different pension companies. When we finally want to receive pension do we have to contact each pension company?


2. What is the minimum age where you can take out pension?


3. As we can take out maximum of 25% lump sum and remaining will be monthly payment. Do I get the monthly pension until I die or will it stop at some stage?


4. If I die before receiving any pension then what will happen? Will my wife be able to take it out?


5. As the lump sum will be tax free, is the monthly pension tax free or not?


Thanks

molerat

1. Yes
2. No limit, many take them out for their kids.
3. Depends on the type of pension and draw down method you choose but basically yes.
4. Again depends on the type of pension but your dependants could receive a lump sum payout, a monthly payment or a mix of both.

NOVAMET21

molerat wrote: »

1. Yes
2. No limit, many take them out for their kids.
3. Depends on the type of pension and draw down method you choose but basically yes.
4. Again depends on the type of pension but your dependants could receive a lump sum payout, a monthly payment or a mix of both.

Thank you for your reply.


Regarding to 1, I think I only ever have 2 pensions; one with previous company and another with my current company. I have only small amount in my first pension. Need to start noting down the pension company names and their contact. What happens if the pension company goes bust? Will I lose my money?


Regarding to 2, so I could take out at 55 or 60?


Do I pay tax when I receive my pension?

xylophone

What kind of pension do you have with your previous employer?

And what kind of pension with your current employer?

How old are you?

Do I pay tax when I receive my pension?

A pension is taxable income after you have taken any Pension Commencement Lump Sum.

Whether or not you pay tax on the income will depend on your overall income after taking into account your Personal Allowance.

dunstonh

1. Many of us have several jobs during our working life and with different pension companies. When we finally want to receive pension do we have to contact each pension company?

yes. Or you can consolidate them as you go along.

2. What is the minimum age where you can take out pension?

Once you have been registered as born with and the birth certificate has been received.

3. As we can take out maximum of 25% lump sum and remaining will be monthly payment. Do I get the monthly pension until I die or will it stop at some stage?

monthly income is just one of the options,. You can do ad hoc, quarterly, half yearly, yearly or never. You can continue to draw on the pension until the money is all gone (assuming you do not buy an annuity with the pension).

4. If I die before receiving any pension then what will happen? Will my wife be able to take it out?

it is paid tax free to your nominated beneficiaries (subject to trustee approval - rarely overridden. Say you had a wife and children and you left it to your drinking mate down the pub. The trustees could override that and give it to your wife and children).

5. As the lump sum will be tax free, is the monthly pension tax free or not?

The 25% can be used for income or lump sum. However, the 75% part is income and subject to income tax above your personal allowance. It uses the same PAYE method that you get for employment income.

Number75

To point 2, don't think the OP meant "take out" as in start a pension, but "take out" as in take the money out.

OP, the 55/60/other age will depend on the type of pension and your age now.

If you have a Defined Benefit pension with your company (or previous) then they set the rules about the age. It can almost never be less than 55. (Exceptions for Armed Services, police, professional sportspeople I think)
There will be a scheme retirement age - often same as state pension age. They may allow you to take it earlier - but they'll reduce your benefits if you do.

If you have a "defined contribution" pension, you can generally take that at the lowest age the government allows. Currently that's 55. But there was talk it would increase to state pension age minus 10 years. So if you're 45 now, it'll probably be 55 still (they don't make really short notice changes). But if you're under 45, I would say bear in mind it could be 57, 58 by the time you get there!

theshed

Hi all
On the subject of old Pensions does anyone know what a 'Buy Out Policy' is and how it differs from a pension ?
I had a Pension with a previous employer, which I was told was frozen when the company ceased trading.
Recently whilst trying to organise my finances I traced the policy to Scottish Friendly and asked could I now contribute to it. Apparently that is not possible as it is a Buy Out Policy, but I could transfer it to another pension.
I am almost 53 and I think the policy was due to mature at 65. Do I leave or transfer ?
I have a reasonably good pension with my current employer but could afford to contribute elswhere.
Any advice, please.

xylophone

A S32 buyout bond?

See http://www.financialadvice.net/s32_buy_out_plan/zone/1288

NOVAMET21

xylophone wrote: »

What kind of pension do you have with your previous employer?

And what kind of pension with your current employer?

How old are you?



A pension is taxable income after you have taken any Pension Commencement Lump Sum.



Whether or not you pay tax on the income will depend on your overall income after taking into account your Personal Allowance.

I honestly don't know what kind of pension I had and have now. How many kinds of pensions are there and what are they?

I will be 29 this month.

NOVAMET21

Number75 wrote: »

To point 2, don't think the OP meant "take out" as in start a pension, but "take out" as in take the money out.

OP, the 55/60/other age will depend on the type of pension and your age now.

If you have a Defined Benefit pension with your company (or previous) then they set the rules about the age. It can almost never be less than 55. (Exceptions for Armed Services, police, professional sportspeople I think)
There will be a scheme retirement age - often same as state pension age. They may allow you to take it earlier - but they'll reduce your benefits if you do.

If you have a "defined contribution" pension, you can generally take that at the lowest age the government allows. Currently that's 55. But there was talk it would increase to state pension age minus 10 years. So if you're 45 now, it'll probably be 55 still (they don't make really short notice changes). But if you're under 45, I would say bear in mind it could be 57, 58 by the time you get there!

Thanks. I didnt even know there were different kind of pensions. I m only nearly 29 and wanted to know if I could afford to retire earlier than state pension age. Ideally I want to retire 60 - 65 age.

Linton

agurung wrote: »

I honestly don't know what kind of pension I had and have now. How many kinds of pensions are there and what are they?

I will be 29 this month.

There are two main classes of work pension:
DB - Defined Benefits, commonly known as Final Salary or "gold plated". These are common in the public sector and are now rare in the private sector. Your employer guarantees you a % of your salary as inflation linked annual income when you retire. There is no money specifically assigned to you and it is up to the employer to ensure that the pension scheme is able to meet its obligations.

DC - Defined Contribution, you and your employer contribute to a pot of money assigned to you that you can use when you retire. There are no guarantees as to the income this will provide.