How does pension work?

Linton

agurung wrote: »

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.

Do you know how much income you will need/want when you retire?

To explore various what-ifs I suggest you play with one of the many pension calculators such as HL's. Its simplistic as it doesnt take account of state pension but will give you some idea of the sort of income you could get at current prices.

theshed

Thanks for that link.
It does look like what I have been signed up-to, but do not recall being told in advance.
By the looks of it I would be better transferring into another plan, I also had an AVC so maybe I could combine them ?
Thanks Again.
And sorry for hijacking this thread, I can never find how to start afresh

dunstonh

I didnt even know there were different kind of pensions.

Around 16 different types and a whole load of hybrid schemes. Pension simplification in 2006 helped address some of the issues but simplification soon went out of the window years later.

xylophone

It does look like what I have been signed up-to

You need to check to be certain of the type of policy you have.

There are certain considerations concerning transfer of S32 policies.


http://www.thisismoney.co.uk/money/pensions/article-3680749/I-want-pension-freedom-trapped-section-32-buyout-plan.html may be worth a look.

If it is a S32, is there a GMP?

What is the value of the benefits? Is it greater than £30,000?

See http://www.pruadviser.co.uk/content/knowledge/oracle_archive/oracle-technical/oracle-tech-june/fca-transfer-rules/

under Pension Transfer Specialist.

And have you obtained a new state pension forecast?

https://www.gov.uk/check-state-pension

Silvertabby

Whatever you do, do something - unless you think that you will be able to live on just the £155 per week State pension.

Kynthia

agurung wrote: »

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

The answers differ for defined benefit and defined contribution pensions.

Defined Benefit is a final salary or career average pension. There isn't a pot of money in your name but a promise to pay you a certain amount every year. They differ slightly but all have similar principles so you'd need to read your own scheme guide.

1. Yes, although some you can transfer to a new employer if they have a similar scheme. However you need to decide whether it's a good thing to do or not.
2. The scheme will have a normal retirement age and an age where you can take it early but reduced. The options are down to the scheme and listed in their guides.
3. These pensions don't work like that. You may or may not automatically get a tax free lump sum or you may be able give up some of your annual pension to get one. Then you get an annual amount for the rest of your life.
4. Depends on the scheme but many will pay a spouse a percentage for life after your death and an additional percentage for children until they are no longer dependant age. If you are still working with the employer when you due there maybe also a death in service lump sum.
5. It will be income and taxed according to your tax code and other income. Just like any income your receive now from employment, rent from a rental property, etc.

Defined contribution is where you and your employer pay into a pot in your name. This is then invested and hopefully grows throughout your life. You may need to look into where it is invested and make decisions about this.

1. Yes, although you can transfer them anytime after leaving an employer if you wanted less seperate schemes.
2. At the moment it's 55 but that might increase over time. However you generally want money invested and growing as long as possible.
3. People used to buy annuities with their pot of money on retirement and these usually paid out a set amount for life. Generally now people aren't doing that as they are getting more by keeping the majority invested and drawing down what they need each year. I know very little about this but they try to ensure they don't take too much so that their money runs out and that their investments grow enough but aren't too risky for their appetite.
4. You should have named a beneficiary with the scheme, don't rely on a will. The pot of money in your name will go to someone that the trustees decide but they will usually follow your wishes unless they believe something had changed since you last completed that form. It's best to update all schemes whenever you want to change your beneficiary or have a major life change.
5. Same as with a DB scheme.

This is my understanding so might be slightly off in places.

NOVAMET21

dunstonh wrote: »

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

Is it easy to consolidate and how to do it? Do I contact my previous and current pension companies to let them know I want to do this?


Is there any cons by consolidating them?

dunstonh

Is it easy to consolidate and how to do it?

Yes. Although its not always a good idea. Some schemes are worth keeping.

Do I contact my previous and current pension companies to let them know I want to do this?

You ask for transfer discharge forms from the old pension and ask the new pension for an application for a transfer in.

Is there any cons by consolidating them?

If the old pension is better than the new pension (charges, guarantees, investment selection etc) then moving it would lose those things.

Turquatic

I had four different pension pots, one is a small db scheme, the other three, I combined two into one and left the other as it is growing very well but doesn't allow transfers in as it's an old employers one.
They are not hard to keep track of as each one has an online account.
You should pay as much as you can into a pension IMHO, it's especially good if your employer matches your contributions, my OH pays 10% and so does his employer.
My DD is 27 and is in the Teachers' pension scheme, she complains about her high contribution level but will be thankful for it later!

PensionTech

My DD is 27 and is in the Teachers' pension scheme, she complains about her high contribution level but will be thankful for it later!

Most likely between 7.5 - 10% of her salary - this is nothing compared to what she's going to get out of it at the end. My mind always boggles when someone in the public sector complains about their pension. My mother, also a teacher, grumbles about her pension and had to be talked out of opting out after the 2015 changes. The unions do a terrible job of representing their members' interests when they talk down the value of the pension so much that people end up opting out!