Pensions..

[wafter]

Short story is that for various reasons I've never interacted much with pensions. I pay a tiny amount into whatever the current statutory state sponsored scheme is and have a small amount in a private(?) pension opened during my first ill-fated graduate job many years ago.

A cursory glance over my latest statement from the private pension suggests that it made about 12% last year, which is obviously far better than any consumer-facing savings accounts, and has piqued my interest.

Talking to a friend last night, he suggested that I can pay into a pension from my wages pre-tax, meaning I effectively get an additional 30-odd percent on any otherwise taxable funds paid in.


If I chose to pay some of my wages into my pension...

- Is there a limit to how much I can save?
- Is this deducted at source by my employeer / through PAYE?
- Can I pay it into my private pension rather than the government scheme?
- Are there any drawbacks in holding more than one pension / favouring the private pension?
- Once paid in, is this money inaccessible until the pension matures and I start drawing money from it upon retirement, can it be accessed earlier or does this vary by pension product?
- Other than instability in the stock market (which I struggle to trust) are there any other dangers to paying into a pension, such as future legislative changes?
- How would the pension be taxed when I started taking it - subject to the usual basic rate threasholds that are applied to earnings?

Thanks



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[T4tomo]

https://www.moneysavingexpert.com/pensions/how-pensions-work/

assuming your are Employed rather than self employed you should (because that's the law) be auto enrolled in your employer scheme which with have 8% (5% from your wages and 3% from your employer) going into it every month. *unless you actively opted at a some point and every 3 years thereafter when you get auto re-enrolled (again the law)

 

[Alex321]

Short story is that for various reasons I've never interacted much with pensions. I pay a tiny amount into whatever the current statutory state sponsored scheme is and have a small amount in a private(?) pension opened during my first ill-fated graduate job many years ago.

A cursory glance over my latest statement from the private pension suggests that it made about 12% last year, which is obviously far better than any consumer-facing savings accounts, and has piqued my interest.

Talking to a friend last night, he suggested that I can pay into a pension from my wages pre-tax, meaning I effectively get an additional 30-odd percent on any otherwise taxable funds paid in.


If I chose to pay some of my wages into my pension...

- Is there a limit to how much I can save?

Yes, but unlikely to affect most of us who aren't millionaires.

- Is this deducted at source by my employeer / through PAYE?

Normally only the workplace pension can be done that way.

Most employers allow you to pay extra into that, which will also be deducted from your salary before tax. Check how good that scheme is, it might be as good as anything you are likely to find separately, and will be less hassle.

- Can I pay it into my private pension rather than the government scheme?

Yes. You would then end up needing to claim the tax back though, because you would be paying from money that has been taxed already.

- Are there any drawbacks in holding more than one pension / favouring the private pension?

Keeping track of it, and sometimes economies of scale - while fees are usiually % based, there is often a minimum, so you can end up paying a higher % on smaller amounts

- Once paid in, is this money inaccessible until the pension matures and I start drawing money from it upon retirement, can it be accessed earlier or does this vary by pension product?

It is usually inaccessible (other than transferring to other pension schemes) until age 55. There is a lower limit, to this, and if it hasn't reached that limit you can stop paying into it and cash it in.

- Other than instability in the stock market (which I struggle to trust) are there any other dangers to paying into a pension, such as future legislative changes?

You can never predict future legislative changes, but usually those are written in such a way as to protect what you already have invested, they mainly affect what you can put in going forward.

- How would the pension be taxed when I started taking it - subject to the usual basic rate threasholds that are applied to earnings?

Yes. You can take a tax-free lump sum ( currently limited to 25% of the total pension pots you hold, and with an upper limit of a bit over quarter of a million on top of that), but anything you then take as income, through an annuity or drawdown (or any other method) will be counted as income (as is the state pension) and taxed according to your threshold and marginal rate.

All your income from pensions or other earnings are lumped together for income tax purposes.

 

[vickster]

The drawing from age 55 only applies now if born in 1972 or earlier, think it’s now 58 (but again that might have an age limit).

You / your employer can pay up to 60k a year with tax relief (there’s something changing though in 2029 I believe)

as mentioned, if you pay in from taxed income, you’ll need to do self assessment, much easier if you do AVCs into your work scheme if your employer permits as that comes out pre tax. It’s 25% tax relief whatever your salary I think (not 30% as the NI isn’t affected)

HMRC website should explain everything (or speak to a pension adviser)

 

[annedonnelly]

+1 for speaking to a pension adviser. I pay an adviser a monthly fee to look after mine - I think it's worth the money as he's been able to advise on consolidating different pensions and which funds to put the investments into.

He's also kindly offered free advice to a couple of friends & family (I assume because I'm not a particularly needy client).

 

[wafter]

Thanks all - very much appreciate the guidance ad that all makes sense and evidently warrants a bit more digging. The government pension sounds more straightforward but tbh I have even less trust of government-run schemes than private ones.

I did consider asking my mum's financial advisor, although tbh don't really trust / approve of him as he seems happy for the funds he "manages" (and takes commission from) returning something like 2% when they could be getting double that in an ISA, so I think next time he visits an uncomfortable conversation needs to be had..

 

[Dorset Boy]

Wafter - you need to learn about risk as clearly you have little understanding. Also learn about real returns.
How did you think you would support yourself in retirement if you weren't going to save to do so?

Cash holdings (be that bank or building society accounts) are the only place guaranteed to lose you money in real terms over the medium and longer term. That is why you invest, as investments, if managed reasonably, will over a 10+ year time period provide real returns (ie above inflation). Investment values will go up and down daily though.

If employed, you should join it. Your employer will contribute a minimum of 3%, you 4% plus 1% tax relief from the government, of your pensionable salary. The workplace pension will have a default investment strategy which is usually a medium risk. Even if it is a Nest scheme you should join as otherwise you are throwing away the employer contribution, but don't pay extra. Nest has a 1.8% contribution charge which no other provider imposes.

Maximum annual contributions are the lower of your annual pensionable earnings or £60,000, though even with no earnings you can contribution £3,600 pa. Those are the gross figures. You can pay in more but won't get tax relief. There is also carry forward if earning over £60,000.

You can only access the pot 10 years before your State Pension age, and that is moving from 55 to 57 in April 2027.

If you make extra contributions to a personal pension you will get tax relief. For every £100 you contribute, the government add £25. If you are a higher rate tax payer, the point at which you pay higher rate will also be push out, giving you effective 40% tax relief.

The funds within a pension grow tax free.

At retirement, 25% of the fund is available tax free (capped at just over £268,000 currently).

You can either purchase an annuity (which provides a secure income for life) or leave the fund invested and draw a flexible income from it (drawdown).

Legislation affecting pensions will definirtely change in the future - it has changed regularly over the last 30 years.

Your mum's adviser is unlikely to be receiving a commission (unless her pension is very old), he may be receiving an ongoing fee though.

 

[wafter]

Wafter - you need to learn about risk as clearly you have little understanding. Also learn about real returns.
How did you think you would support yourself in retirement if you weren't going to save to do so?

Cash holdings (be that bank or building society accounts) are the only place guaranteed to lose you money in real terms over the medium and longer term. That is why you invest, as investments, if managed reasonably, will over a 10+ year time period provide real returns (ie above inflation). Investment values will go up and down daily though.

If employed, you should join it. Your employer will contribute a minimum of 3%, you 4% plus 1% tax relief from the government, of your pensionable salary. The workplace pension will have a default investment strategy which is usually a medium risk. Even if it is a Nest scheme you should join as otherwise you are throwing away the employer contribution, but don't pay extra. Nest has a 1.8% contribution charge which no other provider imposes.

Maximum annual contributions are the lower of your annual pensionable earnings or £60,000, though even with no earnings you can contribution £3,600 pa. Those are the gross figures. You can pay in more but won't get tax relief. There is also carry forward if earning over £60,000.

You can only access the pot 10 years before your State Pension age, and that is moving from 55 to 57 in April 2027.

If you make extra contributions to a personal pension you will get tax relief. For every £100 you contribute, the government add £25. If you are a higher rate tax payer, the point at which you pay higher rate will also be push out, giving you effective 40% tax relief.

The funds within a pension grow tax free.

At retirement, 25% of the fund is available tax free (capped at just over £268,000 currently).

You can either purchase an annuity (which provides a secure income for life) or leave the fund invested and draw a flexible income from it (drawdown).

Legislation affecting pensions will definirtely change in the future - it has changed regularly over the last 30 years.

Your mum's adviser is unlikely to be receiving a commission (unless her pension is very old), he may be receiving an ongoing fee though.

I've been more concerned with supporting myself day to day on the pittance I'm capable of earning, while supporting myself into retirement is a secondary concern to the goal of reaching that age in the first place.

I understand the concept of "real returns", thanks... I also understand the need to keep an amount of funds accessible for emergencies, and the significant losses of capital sustained by the pension pots of family members during the last financial crisis.

Thanks for the additional information, thinly-veiled condescention aside.

 

[Fastpedaller]

As others advise above, get in a scheme the employer runs, as the employer is also required to pay on your behalf.
As an aside, I can understand not trusting the Government(s). Several years ago, I (and my Wife also) were told we had enough qualifying years to get the full pension. A few years on, Martin Lewis suggested on TV that people check whether this is still the case, as the goalposts had changed. In the meantime, my retirement age had gone from 65 to 67, so 2 years extra paying in and 2 years less of payout!
It had changed, and I didn't have enough qualifying years or enough time to 'regain' them. I could have paid a lump sum payment to recover the situation, but using even 'simple sums' ie not allowing for inflation, the monthly amount being deducted from the full monthly pension meant I would have to live until over 90 for the lump sum payment to be worthwhile.
On the positive....... In the 1980's, we were told to 'opt out' of the government pension because it would be beneficial (even the Govt said it), so I contributed to a Co-Op pension for a few years, until we were told (again also by Gov't) that it was better to be in the Govt scheme. The result was that when I retired last year, not only did I get about 99% of the full pension, but also about 6K per year from the Co-Op pension (for which I'm taxed on of course ), but I'd have been 6K behind if I'd not opted out - That's about the only time I've ever gained anything I wasn't expecting.

 

[vickster]

Thanks all - very much appreciate the guidance ad that all makes sense and evidently warrants a bit more digging. The government pension sounds more straightforward but tbh I have even less trust of government-run schemes than private ones.

I did consider asking my mum's financial advisor, although tbh don't really trust / approve of him as he seems happy for the funds he "manages" (and takes commission from) returning something like 2% when they could be getting double that in an ISA, so I think next time he visits an uncomfortable conversation needs to be had..

What government pension scheme do you mean? The State pension?

 

[figbat]

Another limit to contributing to a workplace scheme - you cannot salary sacrifice beyond the limit that would put you at the minimum wage. In other words, if you deduct your pension contribution from your salary, the remainder must be at or above minimum wage.

 

[nogoodnamesleft]

Another aspect to consider is how close to retirement you are.

When I've spoken to my private pension companies about the investments (mainstream ones used to company private pension schemes) many of their investment funds change depending on the individual's age. When contributor is young the investments can take a long term view recognising there will be ups and downs but long term trend is up. But getting closer to retirement and sudden downs can badly damage the fund as there isn't time before retirement to wait for a corresponding up. This my (mainstrean) companies adjust the balance of their investments using higher return/higher risk (with long term view) when still a long time until retirement but migrating to lower return but more stable investments as one gets closer to retirement.

Thus OPs 12% might correspond to a brief "up". Some of my non-pension investments over 2025 returned more than that rate (growth not income) but in the first two months of 2026 declined in value (pre-wars, etc.).

 

[FrankCrank]

I too was unaware of the goalposts being moved, from 30 years contributions to 35 years, but luckily a friend insisted I check, and thus all was revealed and resolved by topping up.

Worth noting, anyone wishing to top up to reach the 35 year max, you can't do this in the final year before you reach retirement age, so a 'heads up' to others in this situation.

 

[nogoodnamesleft]

Worth noting, anyone wishing to top up to reach the 35 year max, you can't do this in the final year before you reach retirement age, so a 'heads up' to others in this situation.

I wasn't aware of that (more recent rule?). Is the last top-up deadline based on retirement age or when you start taking your pension given you can delay starting your New State Pension and then get a higher pension? I looked at delaying starting taking New State Pension but thought the numbers (at that time) made delaying not sensible (ie the increased pension amount vs lost pension income whilst delaying has too long a break even period.

 

[N0bodyOfTheGoat]

The gov website, once you have your username and password, makes it simple to see when you can get your UK sate pension; how much of theoretical maximum you are currently entitled to; how many more complete National Insurance contribution years you need to get the full amount and any gap years from recent years you could fill with voluntary contributions etc.

This thread made me check my situation for the first time in a while and enlightened me to something I didn't realise.

https://www.gov.uk/check-national-insurance-record