Pensions

A pension is essentially a long-term savings scheme. A private pension qualifies for tax relief on contributions up to 100% of your annual earnings..

It’s a way to invest for your future and help you build your savings for life after work.

A pension could be the key to you living the life you want – whether it’s one of basic comfort or all-out adventure.

The sooner you start saving into one, the more options you’re likely to have in years to come. And it’s never too early – or too late – to start.

What is a private pension?

Personal pensions, stakeholder pensions and self-invested personal pensions (SIPPs) are all types of private – or individual – pensions that you set up with a pension provider yourself.

If you are self-employed you could set up a private pension, or even if you are employed, it may be suitable to top up any workplace pension with a private pension. Smart Independent Financial Advice Ltd will advise on the most suitable pension for your individual circumstances.

If a pension is suitable, we will recommend the most appropriate pension wrapper, whether that be a SIPP, personal pension or stakeholder pension – as well as how often and how much you contribute taking into account any annual and lifetime limits.

What you get back will depend on how well your investments perform. As with all investments, the value of your pension can go down as well as up, and you may get back less than you paid in.

All pension providers charge fees for managing a private pension. It's important you’re aware of the costs as they can eat away at your pot.

Consolidating or switching pension pots?

Throughout your life, you may have built up a number of pension pots as a way to save for retirement. Pension consolidation means bringing together these multiple pension pots or schemes into a single plan.

For many people, the main goal of consolidation is to make it easier to manage pensions. Other benefits include potential cost savings, improved investment options and greater control over your retirement planning.

Pension consolidation can be a relatively straightforward process, but it’s a decision that shouldn’t be taken lightly. While there are many benefits associated with merging your pension pots there are some things to consider before making a decision.

For example, you may lose certain benefits associated with your existing pensions. These benefits might include:

  • Guaranteed annuity rates

  • Protected tax-free cash amounts or

  • Investment options that are specific to individual pension plans. That’s why it’s important to carefully review the terms of any pension scheme you’re in before consolidating.

Benefits of pension consolidation

Bringing together your pension pots into one place can offer several benefits, including:

  • Less administration

    Merging pension pots into a single plan means you’ll only have one provider to deal with. This can make it easier to keep track of your contributions, investment performance and overall pension balance.

  • Potential cost savings

    Most pension schemes come with their own set of fees and charges. By merging, you may be able to reduce costs by moving your pensions into a scheme with lower fees. Be sure to review the charges associated with each of your pension schemes as part of this process.

  • More investment options

    If you’re part of an older pension scheme, you may find that it has limited investment options or outdated fund choices. Transferring to a new plan could provide you with a broader range of investment options, including funds with different risk profiles, asset classes and potential returns.

  • Better potential performance

    If your older pensions are under-performing, switching to a consolidated plan could offer the potential for better returns. When researching plans, it can be useful to look at the past performance of the funds they offer before moving your money.

  • Easier retirement planning

    Combining your pension pots can help to simplify the process of planning for your retirement. You’ll have a clearer understanding of your total pension pot, making it easier to estimate your future retirement income. This means you can make any necessary adjustments to your contributions well in advance.

  • Estate planning benefits

    Merging your pensions can also have estate planning advantages. It can make it easier to organise and distribute your pension assets when you pass away, potentially simplifying matters for your beneficiaries.

While pension consolidation can offer these benefits, it is important to consider your individual circumstances before making a decision. Smart Independent Financial Advice offer independent pension advice, who can assess whether consolidation is the right option for you, if it is not, we will inform you of this, which will offer you peace of mind knowing your pots are in the most suitable place.

Pension freedoms explained

The pension freedoms legislation, which came into force from April 2015, allowed savers to flexibly access their defined contribution pension from the age of 55 (57 from 2028) and use the funds for a wider range of options, including cash withdrawal, retirement income products or a combination of the two., so it’s worth knowing what they mean for you and your retirement plans. 

What are pension freedoms?

You have a number of options when you take your benefits from your pension plan. You can usually choose to take a quarter (25%) of your pension pot as a tax-free lump sum. You can make withdrawals from the balance as you need it (also known as pension drawdown) or buy a secure income (also known as an annuity). These will be subject to income tax.

Alternatively, you can take some or all of your benefits as a cash lump sum, with 25% being tax free and the rest subject to income tax. Or you can choose to do a combination of these things.

Pension freedoms were introduced in 2015 and apply to anyone who has a Defined Contribution (DC) pension today. The freedoms allow you to flexibly access the money saved in your DC pension plan.

They initially came into force for pension savers from the age of 55, but this will rise to 57 from April 2028.

What is a Defined Contribution pension?

Pension freedoms only apply to defined contribution pensions. This is where your contributions are used to build up your pension savings, and you then choose how and when you access your money.

The freedoms don’t apply to Defined Benefit (DB) pensions. These are a different type of workplace pension, as the amount of income you receive is linked to your salary and length of service.

Whichever option you choose, you should think carefully about how much money you take from your pension. The money needs to last the whole of your retirement, which might be longer than you think.

Withdraw money from your pension as cash

You can now take your pension pot as cash in one go or as a series of lump sums. The first 25% will be tax-free but the remaining 75% will be subject to income tax.

When taking money from the remaining 75%, you may be pushed into a higher income tax bracket if you also earned money from a salary or other income. This means you may need to pay more tax.

If you’re thinking about taking your pension pot as cash, it is important to consider any tax implications. Smart Independent Financial Advice can advise you the most appropriate course of action when you approach and in retirement.

Lastly, if you want to use money in your pension to pay off a mortgage or debts, then you should contact us for further advise.

We will be able to recommend a solution for your individual circumstances.

Our services relate to certain investments whose prices are dependent on fluctuations in the financial markets beyond our control. Investments and the income from them may go down as well as up and you may get back less than the amount invested. Past performance cannot be used as a reliable prediction of future performance.