Basic Pension Advice/Guidance

cdbe11

My brother in law plans to retire in the next few years - he's 53 now. He earns around 40K and has virtually no pension (an old frozen work pension which he reckons will pay him about £1,500 a year). He has some money saved, I think a pile in the bank and rubbish cash ISA's. As he will be a non taxpayer at least until his state pension starts, I keep saying he should live off the savings while working and put all his salaries into a pension for the tax relief as he'll never pay any tax when he gets it back. We don't know much about pensions and thought you had to buy an annuity - he has no kids but wants to leave what he can to his nephews rather than some company having it all if he drops dead at 59 so kept saying he'd rather leave the money in the bank and they'd get what's left. I've recently read about drawdown pensions - is one of these the answer to his prayers, can he put 40k a year in for the next 3 years, get it bumped up to 150k then take it all back out between age 56 and 67 tax free? 15k a year less the 25% tax free, that thing where you put a bit back in for more tax relief and the remainder covered by his annual tax free allowance. 

Any advice appreciated - what sort/brand of pension should he get? Obviously the draw is the tax savings rather than investment returns so something low risk, low fees.

I'm in a vaguely similar position where I (a non worker) currently feel I'm missing out on tax relief by not putting money into a pension (that little £3,600 allowance) when I'll have a window between 55 and 60 where I could have zero income and could draw out the money tax free - is there any kind of basic scheme that I could use for this (again I want the capital back for my kids)? 

QrizB

The answer to both questions is, broadly, "yes".

• If your brother's gross (before tax) salary is £40k he can pay £32k pa into a relief-at-source pension and get £8k pa added in tax relief. After three years he'll have £120k.
• If you're not earning you can pay £2880 pa into a similar scheme, get £720 pa added in tax relief. you can keep doing this until you're 75.

If your brother is employed he should have been auto-enrolled in his employer's pension scheme where he'll benefit from at least 3% employer's contributions.

xylophone

He earns around 40K and has virtually no pension (an old frozen work pension which he reckons will pay him about £1,500 a year).

If he is employed, why is he not a member of the workplace pension scheme?

With regard to his pension from a former employment, was this a defined benefit pension?

Was it contracted out?

Does he have a statement of benefits on leaving?

Where has he got the figure of £1500 from?

Has he obtained a state pension forecast?

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

Albermarle

Any advice appreciated - what sort/brand of pension should he get? Obviously the draw is the tax savings rather than investment returns so something low risk, low fees.

You have to be clear that the pension is just an administrative entity . It handles the payments in and out , sorts out tax and buys and sells investments on your instruction.

The investments are where your money actually is , unless it is kept as cash ( usually with zero % interest ) 

So a pension itself is never high or low risk , it is the investments you choose within the pension .Some pensions offer a large choice of investments , whilst others make it very simple by just offering a few simple choices.

This is a good government source of info .

Pensions and retirement | Help with pensions and retirement | MoneyHelper

cdbe11

Thanks all, good to know we are on the right track - my brother in law is vague, he works in IT which seems to be an incredibly transient industry these days  - I believe he did 15 years in the same company that teetered between the verge of bankruptcy and being bought by an American company in which case they would all become millionaires - no (or very small) pension scheme and eventually they went bust and made him redundant, since then he's had 6 jobs in less than10 years hence nothing much in the way of pensions - my sister has a decent NHS pension coming and they have plenty of savings - to be honest he's a bit confused and apathetic and his head's in the sand. I believe he's paid enough stamps for the full £180 pension at 67 so its just maximising things in the 10 years before then.

I presume he's in his current (small) company scheme for what its worth so am I right in thinking he can just pay as much as he wants into this or does it depend on their rules and he might need to set up a separate one?

Thanks.

Regarding the investments, I think it was the Bell one I looked at briefly and they seem to offer choices depending on the time to retirement - so I presume the closer this is the lower risk investments should be favoured.

xylophone

I believe he's paid enough stamps for the full £180 pension at 67 

He should get the pension forecast as above.

nothing much in the way of pensions -

He should check what exactly he does have.

I presume he's in his current (small) company scheme for what its worth so am I right in thinking he can just pay as much as he wants into this or does it depend on their rules and he might need to set up a separate one?

It is quite possible that he will be able to make additional contributions to a workplace pension scheme.

Example

https://thepeoplespension.co.uk/workplace-pension-contributions/#paying-more-into-your-workplace-pension

If not, he could consider opening a personal pension - he could even consider consolidating any small DC pensions into the personal pension.