Frequently Asked Questions

Pensions Non-NHS Private Health Staff

 

 

 

 

Q Why should I pay into a pension?

A You don't have to pay into a pension, and if you don't, do you believe you can live to a reasonable standard of living?

 

 

Q What about the State Pension?

A Could you really cope on just £84.25 a week? If you're single, that's the basic state pension (2006/2007). Married couples only fare slightly better... they would only get a total of £134.75 per week

If you are, or have been, an employee you may also qualify for a combination of The State Earnings Related Pension Scheme (SERPS) and The State Second Pension (S2P). This is not available to those who have been self-employed for all their working life.

The actual amount of Basic State Pension, SERPS and S2P you receive will depend on the National Insurance contributions you have paid during your working life.

 

 

Q Is there anything I can do to increase my pension?

A Yes, you can ask your employer if the have a pension scheme such as a Stakeholder pension plan.

 

 

Q What is a "Stakeholder" pension plan?

A Stakeholder pensions were introduced in April 2001, in order to encourage more people to save for their retirement. They have lower charges than personal pension plans and offer more flexibility. Many companies offer Stakeholder pensions to employees which replaced many company pension plans as they were not cost effective to the employer.

 

 

Q What charges are levied on a "Stakeholder" scheme?

A The pension provider is only allowed to deduct a maximum of 1% per annum, of the fund value. This does not take into account payment for advice, financial advisers could charge extra for their advice. The 1% does not take account for advice you may receive. It is possible you could be charged extra for this part of the service as the life assurance companies are not expected to make clear profit on Stakeholder for around 15 years.

 

 

Q Can I invest into ethical funds?

A Many "Stakeholder" schemes are offering an ethical option. Remember to look at the screening process carefully and compare performance figures. Some providers have been in this area of pension planning, longer than others. They may have more established criteria for selecting and screening shares.

 

 

Q What is the maximum contribution I'm allowed to make into a "Stakeholder" scheme?

A £3,600 per annum is the maximum contribution permitted each year. Further contributions can be made into a Personal Pension Plan. You should look at the Pink Finance tax tables for the maximum percentages on personal pensions. You can pay your Stakeholder contributions either as lump sums or on a regular monthly basis.

 

 

Q Where can I buy a "Stakeholder" plan?

A You can buy a scheme direct from your bank, supermarket or Independent Financial Adviser. Remember, banks and supermarkets are likely to offer their own products whereas independent financial advisers can offer the best from the open market, but they may charge for their services, but it is still worth considering Independent advice as it is  better for the consumer in the long run as they are highly qualified in all aspects of finance opposed to someone only conversant in one product. The commissions on Stakeholder are fairly low and it would therefore be acceptable for them to request a set fee.

 

 

Q Who's eligible to contribute?

A Anyone earning or receiving income in the UK can contribute up to the age of 75. This means grandparents could open one for the grand children as a long-term investment. People with un-earned income from property and non-earning partners can all benefit.

 

 

Q Do the government add money to my contribution?

A Yes, the government add tax relief to your contribution at your highest rate. £100.00 becomes £129.00, as if by magic. Higher-rate tax payers can claim further tax relief through their tax return. Pensions are still the most tax efficient form of savings.

 

 

Q Are there any other tax benefits?

A Yes, all of your growth within the fund only incurs a 10% tax charge of dividends. This means that your money is likely to grow faster within a pension, than say other types of investment.

 

 

Q When can I take the benefits from my plan?

A You can take the benefits any time between the age of 50 and 75. Normally the benefits are smaller, the earlier you take them. You should start a pension as early as you can afford. This will give time to earn growth on your early contributions and build a bigger fund.

 

 

Q How do I take the benefits?

A You are able to swap your capital for an income - or take up to 25% tax free lump sum, with a reduced income. These methods have traditionally involved buying an annuity. With interest rates so low, it might be wise to defer this decision. Up to the age of 75, you could use a new type of cash account. This would allow the money to remain invested in the market, whilst withdrawing amounts of capital to fund retirement. These are decisions you should not make yourself and you should seek independent financial advice.

 

 

Q What happens when I retire?

A When you reach the age you are entitled to receive your state pension at, currently 65 for a man and 60 for a woman, the government will send you the required forms for you to apply for your basic state pension and any other state pensions you are eligible for.

If you have other pensions, whether private or company, you may be able to take retirement income from age 50. You should talk to a IFA about your situation and they can advise you on how to maximise your income by purchasing the best value annuities as well as on other relevant issues.
 

 

Extra facts and figures about retirement and state pensions

Basic state pension

What is the basic state pension?

The basic state pension is paid to women at 60 and men at 65, who fulfil National Insurance (NI) contribution requirements and increases in line with prices.

From 6 April 2020, the state pension age for both men and women will be 65.

The government will introduce the change gradually from age 60 to 65 for women over a 10-year period from 2010 to 2020

How much is it worth?

The full weekly rates are (year to April 2007):

State Pension
£84.25 a week (single)
£50.50 a week (wife on husband’s contributions) or (over 80s category D pension)
£134.75 a week (couple based on husband’s contributions)

Age Addition
£0.25 a week for those aged 80 or over

Pension Credit (Guarantee Credit)
If your income is below these thresholds, you should qualify to have your income topped up to:
£114.05 a week (single)
£174.05 a week (couple)
• Individuals must be 60 plus to qualify. For couples at least one of them must be 60

Pension Credit (Savings Credit)
If your income is below these thresholds, you should qualify for extra money based on savings, up to:
£158 a week (single)
£233 a week (couple)
• Individuals must be 65 plus to qualify. For couples, at least one of them should be 65
• Add £46.75 to these amounts if you are receiving Attendance Allowance or Disability Living Allowance at the middle or higher rate
• Add £26.35 to these amounts if you are a carer spending at least 35 hours a week looking after someone who gets AQA or DLA above
• For savings over £6000, it is assumed that you receive a weekly income of £1 for every £500 or part thereof

Council Tax Benefit
Those aged 60-64 will get 100% rebate on their council tax if they have:
A total weekly income of less than £114.05 (single)
A total weekly income of less than £174.05 (couple)

Those aged 65 plus will get 100% rebate on their council tax if they have:
A total weekly income of less than £131.95 (single)
A total weekly income of less than £197.65 (couple)
• Add £46.75 to these amounts if you qualify for AA or DLA
• Add £26.35 to these amounts if you are a carer for at least 35 hours a week

Attendance Allowance
Higher rate £62.25 a week
Lower rate £41.65 a week

Carer’s Allowance
£46.95 a week

Winter Fuel Payment
Those households where at least one person is aged 60-79 will receive £200
Those households where at least one person is aged 80 plus will receive an additional £300
One-off Council Tax Payment
Households where at least one member is aged 65 plus will qualify for an additional £200 payment towards council tax bills (to be reviewed in March 2006).
The following households will not qualify for the one-off payment:
• Where all residents are aged under 65; or
• Where they are already in receipt of Pension Credit guarantee/Council Tax benefit; or
• Where they maybe eligible for Council Tax Benefit but have not yet applied for it
• In cases where the household is aged 70 or over and in receipt of Pension Credit guarantee a one-off £50 living expenses payment will be made
Personal Tax Allowances
Aged under 65 £5035
Aged 65-74 £7280
Aged 75+ £7420

Will I get the full basic state pension?

Not necessarily.

What you get will depend on your National Insurance (NI) contributions - and the rules are stringent.

Your pension depends on how long you have worked for and the number of "qualifying years" you have.

A woman with a working life of 44 years will need 39 qualifying years for a full pension and a man with a working life of 49 years will need 44 qualifying years.

However, the contribution record of people who have been unable to work due to unemployment, sickness or caring responsibilities, may be protected by credits or "home responsibilities protection".

What happens if I have not made enough contributions?

If you have not paid sufficient contributions you may get a partial pension or you may not receive a pension at all.

If you are not entitled to a full Basic Pension you may receive a reduced amount.

But if you retire with less than 25% of the qualifying years for a full pension, you won't get anything at all.

People aged 80 and over receive a non-contributory pension, at 60% of the basic state pension as long as they fulfil other requirements, such as residency rules.

Age Concern's fact sheet on the state pension has a useful table, which can help you work out entitlement (see contact list link below).

What about the earnings link?

A link between state pensions and earnings was introduced by Barbara Castle in 1974.

This ensured that state pensions kept up with the rate at which salaries were rising.

However, it was scrapped six years later by Margaret Thatcher, and more pensioners must now rely on private savings to make up the difference.

Restoring the link with earnings would cost an estimated £0.5bn in the first year, rising to £10bn by 2010, according to government figures.

Isn't the state pension age changing for women?

Legislation to equalise the pension age at 65 for both men and women has been passed.

The change will be phased in between 2010 and 2020 and will not affect anyone born before 6 April 1950.

If you are a woman and born between 6 April 1950 and 5 April 1955, your state pension age will fall somewhere between 60 and 65.

The government's pension service has details on the age and date when you will be able to receive the state pension.