Pension Academy video series

Episode 5: What happens to pensions in special circumstances?

Key takeaways

If you're 22 years old or over, and earn at least £10,000 a year, you'll be automatically enrolled into your company's workplace pension – if you earn less, you might need to ask to be enrolled.

If you're a higher or additional rate taxpayer, you can usually claim extra tax relief on your personal pension contributions through a Self–Assessment.

You don't have to be working to pay into a personal or private pension.

If you're on a low income or on parental leave, you may want to make additional contributions to your pension while your salary is lower.

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If there’s one thing we can all be certain of, it’s that nothing is certain. And no matter how much we try to group people together and talk about pensions using averages, everyone’s different. So this video’s for everyone who doesn’t fit under ‘average’ - which is probably most of us!

Let’s start with salary. If you earn a low income, you may be worried about saving enough for retirement. So make sure you’re enrolled into your company’s workplace pension. If you’re at least 22 and earn over £10,000 a year, you should be automatically enrolled. But if you earn less than that, you may need to ask to join your employer’s pension scheme. Once you’re enrolled, try to contribute the most you can comfortably afford. Because while it may be tempting to cut back to afford other things now, you could be missing out on thousands of pounds of extra pension income later in life. And remember, your employer’s legally obliged to contribute at least 3% of your qualifying salary.

For those of you who are on a high income, you need to consider how to save as efficiently as possible. If you’re a higher or additional rate taxpayer, make sure you complete a Self-Assessment tax return to claim extra tax relief on your pension contributions. But bear in mind, you only get tax relief on up to £60,000 of contributions or 100% of your salary each year (whichever’s lower). And for those on very high incomes - we’re talking about people earning hundreds of thousands a year - your annual tax relief allowance tapers down the more you earn. But if that applies, you probably have an accountant telling you this already... !

Now, for those of you who are unemployed or between jobs, remember that you don’t have to be in work to pay into a pension. So try to contribute into an existing pension, or set up a new personal pension so you don’t fall behind. Just remember that if you earn less than £3,600, the maximum you can contribute while still receiving tax relief is £2,880. Another thing to consider is that in order to receive the full State Pension - which is £203.85 a week - you’ll need to have paid National Insurance for 35 years. And to receive the basic State Pension - which starts at approximately £58 a week - you’ll need to have paid National Insurance for at least 10 years. So, if you can, consider making voluntary National Insurance Contributions while you’re between jobs. If you can’t, you can always make additional payments later. And you may also be entitled to claim National Insurance Credits, which is worth looking into. If you’re looking for a new job, check out the company’s pension offering. Because some companies pay in a lot more than others, and it could make a big difference to your retirement income.

Now here’s one for all the new parents out there! If you’re taking a break from work to raise a child, firstly... congratulations! Secondly, pay attention. Because this is a particularly important time for your pension. Now, these days, parents - including those adopting - are legally allowed to share up to 12 months of statutory leave following the birth of a child. In terms of your salary, you’ll receive 90% of your average weekly salary for the first six weeks, then £172 or 90% of your average weekly salary (whichever’s lower) for the next 33 weeks. And your employer may boost that with their own parental leave policy. But - and here’s the important bit - remember that your pension contributions are usually set as a percentage of your monthly salary. So when your salary goes down, so will your contributions. You can fix this by asking your employer to increase the percentage of your salary that goes towards your pension. You’ll take home a little less each month, but you won’t fall behind your pension savings goal.

Finally, we probably shouldn’t have to call out women as a specialist group, but there are, unfortunately, a few things we need to be aware of - because, according to PensionBee, women typically have around 40% less in their pension than men. This is due to lots of things, from lower salaries to career gaps, and there’s no silver bullet solution. But, if you start contributing to your pension early and you keep up those contributions using some of the tips we’ve already covered - like raising your contributions if you take maternity leave - you’ll be in a good position to retire with a healthy pension pot. You might also want to consider splitting shared parental leave with a partner. And if you come back to work in a part-time role, for the sake of spending more time raising a child, you could ask your partner to contribute to your pension too. You could also register for Child Benefit which could boost your income and give you extra National Insurance Credits which go towards your State Pension entitlement.

So, let’s recap:
  • If you’re on a low income, make sure you’ve asked to be enrolled into your workplace pension and are contributing as much as you can afford.
  • If you’re on a high income, fill out a Self-Assessment tax return to claim extra tax relief on your pension contributions. And watch out for maxing out your tax-free annual allowance.
  • If you’re unemployed, keep up your pension contributions so you can stay on track, check how much potential employers will pay into your pension, and consider making additional National Insurance Contributions.
  • If you’re on parental leave, consider raising the percentage of your salary you pay into your pension so you don’t fall behind.
  • And if you’re a woman, you might want to look into things like shared parental leave, asking a partner to contribute to your pension, and claiming Child Benefit.
This video was presented by Patricia Bright on behalf of PensionBee. Patricia Bright isn't a financial adviser and the views and opinions expressed in this informative video are those of Patricia alone and do not constitute financial advice.

The content of this video has been reviewed by the pension experts at PensionBee and was confirmed to be correct and in line with current HMRC guidelines and legislation based on their understanding of current tax legislation as of 4 August 2023.

Remember, as with all investments, your capital is at risk.

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