Дали жените получават справедлив дял от пенсионната система
43% от жените получават между 5,000 лири и 15,000 лири – сравнени с 20% от мъжете
През цялото време несъответствие в заплащането – около 17%, няма голямо подобрение
Схеми с определен размер на обезщетението: ниското заплащане означава ниска пенсия
Схеми с определен размер на вноската: ниското заплащане означава ниски вноски, а това означава ниска пенсия
Работа на непълен работен ден
40% от работещите жени работят на непълен работен ден
78% от всички работещи на непълен работен ден са жени
Работодателските схеми сега трябва да третират по еднакъв начин тези, които работят на непълен работен ден с тези, които рабоят на пълен работен ден
Нископлатените професии да се отчитат пропорционално (в кратно съотношение) за националното осигуряване – може вяка да бъде под долния праг
Поемане на отговорностите
Държавна пенсия: програмата за закрила на хората, които изпълняват домашни задължения покрива изцяло само данъчните години, ако поне 35 часа седмично полагате грижи за лице с инвалидност, като това е достатъчно да получите помощ за гледане на болен член, която е по-висока от минималния размер или да получите подобни плащания за различни категории хора.
88% от самотните майки с дете под 5 години нямат право на друга пенсия освен базисната държавна пенсия
Отпуска по майчинство и временно прекъсване на кариерата
Схемите с определен размер на обезщетенията (базирани на последна заплата) не осигуряват справедливо третиране на лицата с такъв статут treatment to leavers
Законовите права през периода на майчинство при схемите с определен размер на вноските се запазват и продължават да се натрупват
Схемите с определен размер на обезщетението могат да правят специални споразумения (договорености) при прекъсване на кариерата career breaks
Личните пенсии – таксите ще продължават даже в случаите когато никакви пари не постъпват в сметката.
Развод и прекъсване на партньорството
Пенсията може да се раздели – но много често с известен компромис за сметка на други активи или собственост
Забележка: много схеми плащат пенсия само на законни съпруги или на партньори, живеещи на семейни начала или на бивши съпруги
По-дълга продължителност на живота
Схеми с определен размер на обезщетението: пенсия ще продължи да се изплаща – но уверичението на пенсията може да не следва в същата степен увеличението на цените и на стандарта на живота
Схеми с определен размер на вноските: поради действието на анюитетния фактор по пол жените получават по малък размер пенсия от този, който се полага ако няма разграничаване по пол.
Дали жените получават справедлив дял от пенсионната система? Вие какво мислите? Как би могла системата да бъде подобрена?
Вие може би се интересувате от Мрежата за пенсиите на жените. Повече информация за това можете да намерите на сайта - www.eoc.org.uk – кликнете върху “Policy and campaigns” и след това “Pensions and benefits”
The EOC is co-ordinating a Women's Pensions Network. We are building a consensus on women's pensions that has 3 building blocks for reform.
Support the Women's Pensions Campaign.
"If we get it right for women, we'll get it right for everyone"
1 от вески пет 5 самотни жени-пенсионерки е изправена пред риска за бедност при пенсиониране
2.2 млн. жени не са натрупали права даже за базисната държавна пенсия. Пенсионираните мъже получават средно между 50 лири и 100 лири на седмица повече личен пенсионен доход отколкото жените на същата възраст.
Спестяванията за пенсия на жените намалява наполовина когато родят дете. Данните за мъжете не се променят когато те стават бащи.
95% от хората са съгласни, че жените трябва да имат техни собствени пенсионни права и не би трябвало да разчитат на съпруг или партньор.
Почти 6 от 10 човека са съгласни, че националните осигурителни вноски биха могли да се увеличат с 1%, за да дадат на родителите и на тези, които се грижат за други членове на семейството същите права за държавна пенсия каквито имат тези, които са на платена работа.
Трите изграждащи сектора за реформа:
Общо (еднакво) право за получаване на базисна държавна пенсия
Така би могло да се признае „стойността” на всяка лична вноска, независимо дали е от платена работа или от грижа за друго лице. С Това би могло да се постигне сигурност и опростяване в държавната пенсионна система и да се осигури стабилност, опростяване и прозрачност в пенсионната система като цяло и да насърчава всеки един да спестява и да планира за своето пенсиониране. Това би могло също да се разпростре върху тези групи, които особено са по-малко включени в пенсионната система – напр. чернокожите и други жени от етническите малцинства Признаване и подкрепа на жените, които се гружат за други във всички пенсионни схеми.
Both state and private pension arrangements need to properly recognise and reflect unpaid caring work, to ensure that the pensions system delivers for all. They need to be flexible to take account of different working and caring patterns. Individuals should readily have access to advice and information, whether from the private sector or the state, which would enable them to take up options that can cover periods of care and resulting changes in working patterns.
A shared responsibility to save for a second pension
We need to close the pensions gap between women and men in state, private and occupational schemes. Building on the existing contributory principle, individuals, employers and the state should all have a responsibility for contributing to an individual's pensions saving; parents and carers should not lose out. Everyone who works or cares should be able to accrue pension income above the poverty threshold. The unpaid work of parents and carers should be recognised and rewarded by state contributions to a second pension. People in low income employment also need state contributions toward pension savings. Employers should recognise their responsibility to pay into pensions schemes for all their employees.
Some trade unions already support this campaign, including Amicus, GMB, PCS, TGWU and USDAW.
Women's Pensions Network
The EOC is co-ordinating the Women's Pensions Network. We are a diverse group of organisations, united by a common desire to demonstrate the considerable and growing consensus around women's pensions and calling for significant reform to the pensions system to make pensions work for women.
The current high profile and wide ranging debate on pensions reform means we have a once in a generation opportunity to deliver a pensions system which works not just for men but also for women. To do that it must fully recognise and reward the vital unpaid caring work that largely women do and ensure that women who are often stuck in low paid work do not slip through the net and risk spending their retirement in poverty. We need to find a system that can recognise all contributions, in partnership with the responsibility to save when able.
The gender pay gap over women's and men's working lives becomes an even bigger pensions gap in retirement because of the penalty that many women face for doing unpaid work caring for dependant children or older relatives or spending time in low paid, often part time work. Many argue that in the future women's working patterns will simply converge with men's, and therefore women's pensions will gradually cease to be an issue. But they couldn't be more wrong. This problem won't solve itself. Women's greater likelihood of undertaking unpaid caring commitments - raising children or caring for older people and disabled people - means that they will continue to suffer severe disadvantage compared to men when it comes to building up a pension. No amount of labour market reform will help today's or tomorrow's women pensioners. We need to find a solution that can work for all generations of women.
Women are two thirds of pensioners and their needs and the desire for independence and equality should be at the heart of the pensions debate, not seen as a "minority" issue. A solution which does not address the needs of women will fail. Women cannot afford to miss out this time.
Furthermore, it isn't just women's working lives that are complex. Increasingly, men are take breaks from paid work to care for children or older relatives. They also take time out to re-train or re-skill after being made redundant or switching careers. Designing a pensions system that can cope with this fragmented working pattern is essential for 21st century living.
That is why we say if we get it right for women, we'll get it right for everyone. КАКВО ЩЕ СЕ СЛУЧИ С МОЯТА ПЕНСИЯ АКО? ...................АЗ ЗАГУБЯ МОЯТА РАБОТА?
Вземам моята пенсия по-рано ( на 50 години или повече години)
Изплаща ми се договорено обезщетение поради съкра-щаване от работа
Законово определено обезщетение поради съкращаване от работа
Помощи за лица, търсещи работа
Национални осигурителни вноски/кредити
Ако сте на възраст 50 години или повече ( или 55 години, след 2010) би било възможно да изтеглите вашата пенсия незабавно. Това би могло да намали вашата пенсия поради ранно пенсиониране It will be reduced for early payment, дори, или независимо, че вашият работодател се е съгласил на специални условия. Те могат да бъдат част от договореното обезщетение поради съкращаване от работа, на което имате право. Information about the statutory redundancy terms can be found in a guide from what used to be called the DTI, called “Redundancy entitlement – statutory rights. A guide for employees”, available from www.berr.gov.uk/publications.
Ако сте под 60 години и не бъдете веднага наети на работа, по-добре е да се регистрирате като безработни, независимо дали имате право да получавате помощи като търсещи работа. Помощите са за да получите национални осигурителни кредити за защита на правото ви на държавна пенсия. Ако получавата определена сума като компенсация, то е възможно тази сума да бъде плащана от работодателя, или пък част от нея да бъде прехварлена като пенсионен ангажимент „някакво пенсионно плащане”. ....ПРЕМЕСТВАМ СЕ ПРИ НОВ РАБОТОДАТЕЛ? СХЕМА С ОПРЕДЕЛЕН РАЗМЕР НА ОБЕЗЩЕТЕНИЕТО ИЛИ ПРОФЕ-СИОНАЛНА СХЕМА С ОПРЕДЕЛЕН РАЗМЕР НА ВНОСКАТА
Под 3 месеца служба – възстановяване на средствата
3 месеца - 2 години: възстановяване или прехвърляне на срествата
Над 2 години: прехвърляне или запазване(отложена) пенсия
Договорена схема с определен размер на вноските
Това е по-лесно за Вас да го направите
В някои случаи Вие можете да напуснете работодател, но все още да останете в същата пенсионна схема. Това се случва с учителите, напр. които упражняват тази професия в цялата страна и още продължават да бъдат членове на Учителската пенсионна схема. Много по-често, обаче, особено ако работите в частна компания, когато напускате вашия работодател, Вие трябва да излезнете и от пенсионната му схема. Тогава Вие имате няколко възможности за Вашата пенсия.
Колко дълго сте били при Вашия работодател
Възможности, които работодателят може да Ви предложи
Под 2 години
В повечето случаи Вие ще можете да си възвърнете вашитевноски, намалени с данъците върху тях и ако схемате е от вида „с излизане” – разходите за прехвърляне Ви към втората държавна пенсия;
Има няколко вида схеми, от които не може да се получи възстановяване на средствата – това са така наречените „неконтрибутивни схеми, т.е. схеми без вноски”. В тези случаи на Вас може да Ви бъде предоставена възможност да отложите вашата пенсия или да имате право да се прехвърлите към друга работодателска схема или за лична пенсия .
Повече от 3 месеца, но по-малко от 2 години
Както при възможността за възстановяване на средствата, вашият работодател може да Ви предложи възможността да се прехвърлите към друга работодателска схема или за лична пенсия.
Ако не отговаряте на условията (правото) за възстановяване на средствата
Ако не отговаряте на условията, необходими за възстановяване на средствата, Вие трябва да имате възможност за отложена пенсия или право да се прехвърлите към друга работодателска схема или за лична пенсия.
Ако сте над 50 години
(55 години от 2010 г.)
Вие имате право да започнете да получавате вашата пенсия поради по-ранно пенсиониране, но тя ще бъде по-малка от тази, която бихте получавали ако се пенсионирате на нормалната пенсионна възраст
Statutory right to transfer out
Not likely to have new DB scheme to transfer in to (except public sector)
Or trustees may not accept transfer
Transfer value will give about half service
Unless transfer is between public sector schemes
“Preserved” = “deferred” = “frozen”
Preserved DB will increase in line with inflation (capped)
As explained above, for most people who leave their pension schemes, the options are;
Your pension can be ‘deferred’ or ‘preserved’ in the scheme, and you can collect it when you retire. People often refer to this as a “frozen” pension but in fact it does receive some increases. The rules here are very complex, but broadly, it will keep up with inflation so long as that does not go above 5% (or without a ceiling, if it is a public sector scheme);
Alternatively, you can take a transfer to another employer’s scheme, or to a personal pension. You have the right to ask for a transfer out of a scheme at any time up to a year before retirement date. However, the new pension scheme may not accept transfers at all, or may allow them only within a certain time limit, especially in the public sector.
If you are 50 (or over when you leave, you may be offered an immediate pension, but it will probably be a reduced amount. (This age-limit changes to 55 from 2010 onwards)
“Pensions liberation”: a warning
“Pensions liberation is a scam that tempts people who would like to get hold of money from their pension funds. People calling themselves financial advisers offer to turn pension benefits into a tax free lump sum immediately. They then ask the individual’s existing pension scheme to transfer their pension money to a new scheme, which may well be in the name of a fictitious employer. These “liberators” usually charge high commissions, ranging from 20% to 30 of the value of the individual’s pension. On top of this, there may be a tax bill to pay.
For more information, see the FSA information sheet “Unlocking pensions: make sure you understand the risks” available from the FSA website.
Tracing a pension from a previous employer If you have moved jobs several times, you may have several deferred pensions in different places by the time you come to retire. You will then need to write to the administrators of each, asking for your pension to be paid.
Some of the firms concerned may have closed, or merged with other ones and changed their names. If you have trouble tracking down your previous pensions, you can use the Pensions Tracing Service.
Contact the Pensions Tracing Service, via the Pensions Service,
Whitley Road, Newcastle upon Tyne NE98 1BA
Phone: 0845 600 2537
FSA guide to the risks of salary-related occupational pension transfers, FSA, Sept 2005
….I GO ON MATERNITY OR ADOPTION LEAVE?
Ordinary maternity leave/adoption leave: pension rights continue, but contribution based on remuneration actually received
Additional maternity leave: pension rights may stop; schemes may offer special terms
During Ordinary Maternity Leave, employment rights, including pension rights, are maintained. In addition, occupational pension schemes must make any period of paid maternity leave pensionable as if you were receiving your usual rate of pay. However, pension contributions can only be deducted on the basis of the pay you are actually receiving.
Mary usually earns £200 a week, but her maternity pay is only £108. Her pension contribution is 5%, so while she is receiving maternity pay she will only pay £5.40 instead of her usual £10 contribution. But her pension will build up as if she was still being paid £200.
Employers do not have to provide any pension benefits during unpaid maternity leave, but the scheme rules may allow periods of unpaid leave to be credited if the employee pays additional contributions on her return. In any event, the scheme should treat the service as continuous.
State pension rights may be partially protected by Home Responsibilities Protection (discussed earlier in the course).
Note that there is some legal doubt about how much employers should pay into a DC scheme during a period of maternity leave on reduced pay. If this affects you, you may want to seek further advice from your union.
….I GET DIVORCED?
Swap house for pension
Pension splitting (sharing)
State pension: can’t go on paying “small stamp”
Can still rely on spouse’s NI record – unless you remarry before SPA
There are two ways in which an occupational pension can be divided between a husband and wife when they are getting divorced, or between civil partners on a dissolution:
Earmarking: this means that once the pension starts to be paid, it is divided between the member and the former spouse/ civil partner according to a judge’s order. It dies with the member however, and if the former spouse or civil partner remarries he or she loses it. Earmarking is complicated and does not work very well, so very few earmarking orders have been made.
Pension sharing: This means that the pension is divided at the time of divorce. The former spouse or civil partner is generally then able to transfer their share elsewhere.
The process is that:
As part of the information gathering for the financial settlement, the scheme member will be asked to obtain details of the transfer value from their pension scheme.
The court may make an order that part of this transfer value must be passed over to the other spouse/ civil partner.
Depending on what type of scheme it is, and the policy the trustees have adopted, the other spouse or civil partner may then have to leave his or her share with the member’s scheme for it to look after, transfer it to his or her own scheme or a personal pension, or have a choice of doing either. Information about which options are available with the scheme in question will be included with the details of the transfer value.
The amount passed across is treated as an addition to the other spouse’s or civil partner’s pension, to be counted against the lifetime allowance, and a reduction in the original member’s pension.
Where both members of a couple are young, or both have roughly equal pensions, the courts are unlikely to make a pension order. It is more likely to happen where one person has a much greater pension entitlement than the other, for example a senior manager whose wife has been working part-time while looking after young children. Even then, other assets such as the value of an owner-occupied house or a share portfolio are more likely to be divided taking the value of the pension into account in the calculation, as this is simpler and clearer than splitting the pension itself.
State Pensions and divorce/ dissolution Note: The rules explained in this section also apply to the dissolution of civil partnerships. The term ‘divorce’ is used here to cover both, and “spouse” also covers civil partners.
There are special rules to help divorced people qualify for a Basic State Pension as long as they have not remarried. The Pension Service checks both your National Insurance contributions record and that of your ex-spouse when you retire. If your former spouse’s record will give you a better State Pension than your own, they substitute it for yours. They can do this either from the date of the marriage to the date of divorce or from the beginning of your NI working life up to the date of divorce (or the year before State Pension age in both cases). This is simply a book-keeping exercise, and it makes no difference to the former spouse.
It is possible (although rare) for State Earnings Related Pension (SERPS) and State Second Pension (S2P) to be divided as part of a divorce settlement, in the same way as an occupational pension (see below).
If a woman gets divorced before State Pension age and has been paying NI contributions at the married woman’s reduced rate, she will need to transfer to the full rate.
If you remarry before State Pension age, you lose the right to use your former spouse’s NI contributions record for your pension. If you divorce again, you can use only the last spouse’s NI contributions record in this way. However, if you remarry after State Pension age, you do not lose the pension you already have.
When spouses separate, because their marriage is still legally in existence it is not possible for them to make use of each other’s National Insurance contributions record. However, when the husband in a separated couple claims his State Pension, his wife is able to claim a married woman’s pension of £52.30 per week if she does not qualify for a pension on her own NI contributions record. (This rule does not apply to civil partners at present, but will from 2010.)
….I’M TOO ILL TO WORK?
Early retirement – what terms, what criteria ?
If you are in a DB scheme, the scheme rules will almost certainly provide for early retirement terms at any age if you are too ill to work. The terms differ between schemes. In some schemes – and almost always in the public sector schemes – you will not be able to retire unless the medical advice is that you are permanently incapacitated for work. Many schemes will not pay a pension unless you are unfit for any work, whereas some will pay so long as the medical advice confirms that you are unable to do your own or a similar job.
Many schemes will have special rules in the case of terminal illness, and will allow the value of the pension to be paid out immediately as a lump sum. This should not affect the amount of any pension paid to a spouse, partner or children.
It is not possible to draw the state pension early, but you may be entitled to Incapacity Benefit. The rules for this are extremely complex, but there is more information on the DWP’s Jobcentre website, www.jobcentreplus.gov.uk.
If you are in a DC scheme of any sort, there are very unlikely to be arrangements for ill health retirement, though you should be able to bring your pension into payment if you are 50 or over. Many employers will instead provide a Permanent Health Insurance (PHI) scheme, also known as an income protection scheme, instead. This will pay out a percentage of your salary – typically 50% - so long as the insurance provider agrees that you are still unfit to work, or until your normal pension age, whichever is sooner.
…I DIE BEFORE I RETIRE?
Lump sum ?
Pension to spouse/partner ?
Pensions for children ?
State pension for widow/ers
Most occupational schemes will make a lump sum payment – typically between two and four times your annual pay. In the public sector schemes, this will be paid automatically to the person you have nominated. In private sector occupational schemes, the payment is made at the trustees’ discretion. They will take into account your wishes, if you have stated these (generally through an “Expression of wish” form), but they are not bound by these.
DB schemes will pay a pension to a surviving widow, widower or civil partner, but they may not always pay a pension to an unmarried or unregistered same-sex partner. In some cases the scheme rules simply do not allow for this; in others, the trustees may have discretion to pay a partner pension, so long as they are satisfied that the partner was financially dependent on the scheme member.
Most DB schemes will also pay a pension to any dependent children, but the rules on which children may be entitled to a pension (for example, a partner’s children who have not been legally adopted) and until what age, will vary from scheme to scheme.
Some state benefits are payable to widows, widowers and civil partners who are over 45 but under state pension age, and benefits are also payable at a younger age if there are dependednt children: more information is available from the DWP.
Activity: Totting up your pension
Aim: to help you work out roughly how much income you might have in retirement, given your current pension position
At the start of the weekend, we did an activity looking at how much income you thought you’d need (in terms of today’s money) to give you a comfortable retirement.
With the information you have collected since then, you can now make a rough estimate of what you are likely to have coming in as income, again in terms of today’s money.
WHAT WILL YOU HAVE COMING IN? If you have them with you, collect together your benefit forecasts and estimates.
Otherwise, use the figures you have worked out on this course as rough estimates (but send off for more detailed figures when you get home)
Put down figures for
What does the estimate show?
your State Pension
any occupational pension
any personal or stakeholder pension
You might also have some non-pension savings that you regard as being available to finance your retirement. So in the empty spaces in the table, put down:
a total (as at today) for other savings or investments you see as being there for the long term; and
a figure for part of the value of your home, if you own it and seriously intend (and would be able to) realise that value when you retire. However, think carefully about this. If you live in a large house in or near London, in an attractive part of the country, liberating some of its value may be easy. If you live in a small terraced house in an area with a depressed housing market, you may not be so lucky. If you are planning to sell your current home, think about where you would live afterwards. It’s better to be cautious rather than rely on something that may not happen.
Put down the capital figures first, and then think about what these capital figures might produce as income. One rule of thumb is that you can draw £1 of income for around every £20 or £25 of capital, without diminishing the capital. If you don’t mind spending the capital, you could be a little less cautious. Decide on a reasonable formula and put down a rough income figure from your capital
Now you are in a position to add together your estimated pension income and non-pension income, and see how they compare with what you need to live on.
HOW DOES IT LOOK?
Tick one of these statements:
A. I’m well on course for a comfortable retirement
B. I’ll just about get by at retirement; or
C. I’m heading into poverty.
If it is either B or C, you’ll probably want to think hard about how you can change the situation. Improving your future position is probably going to mean putting more away for your retirement.
For a couple, this exercise is more complicated than for a single person. You might like to go through it twice, once together and once separately. When doing it separately, each partner needs to take account of:
pensions/savings held in his or her own right;
those they would inherit from the other (for example, a widow’s/widower’s/civil partner’s pension for a married couple); and
life insurance policies, provided they would still pay out in retirement. If the life insurance is part of a pension scheme, what is provided will change as soon as you retire, and will generally drop down to zero, or to a minimal ‘funeral benefit’ within five years
If you don’t have enough in retirement: Pension Credit
Guarantee Credit (GC, formerly Minimum Income Guarantee) from age 60,
Savings Credit from age 65; pensioners on income up to around £150 a week may be eligible
Provides “passport” to other benefits
Means tested, and extremely complex
Currently increases in line with earnings
Aged 60 or over (or 1 of couple is)
currently £119.05 a week for single pensioners, couples £181.70
Higher rate if disabled/certain housing costs/child benefit
Reduced if savings/capital (not including home) of more than £6000 - £1 per week reduction for each £500 above £6000
Where BSP below full rate, SC only paid on income above full BSP level
Maximum payable to single pensioner £19.05 (weekly rates, 2007/08)
None payable where income is above £167
Maximum to pensioner couple £25.26
None payable when income reaches £245
When you reach retirement, you may find that you have not been able to save enough to live comfortably in retirement. You can get some means-tested benefits from the State to help out. The main one is Pension Credit.
This is a weekly social security entitlement for people aged 60 and over with low and modest incomes. You do not need to have paid National Insurance (NI) contributions to qualify for Pension Credit, but your income and any savings and capital over a certain level will be taken into account.
It comes in two parts – the guarantee credit and the savings credit. The guarantee credit tops up your income to a level set by the Government. The savings credit gives extra to people aged 65 and over who have income over a certain level, from sources such as pensions and savings. You may be entitled to the guarantee credit or the savings credit or both.
You will probably also qualify for Housing Benefit (HB) and/or Council Tax Benefit (CTB) to help with these bills. Even if your income is too high for you to receive Pension Credit, you may still be entitled to these benefits.
So long as you are over 60, you can work and receive Pension Credit, although most of your earnings will be taken into account. You may also be able to apply for other benefits such as lump-sum payments from the Social Fund. The guarantee credit will ‘passport’ you to help with health costs such as help towards glasses and free dental treatment.
How Pension Credit works: an example from the Pension Policy Institute
Dolly is entitled to a BSP of £77.30 a week; she also receives an occupational pension of £30 a week, giving a total of £107.30. She will be entitled to a guaranteed element of £11.75 from age 60, to increase her income to £119.05; from 65 she will also receive a savings credit of £12 a week, i.e. 60% of the excess above £87.30. If she was entitled to a full BSP, she would receive £18 a week of savings credit.
More information; look at Pension Credit; Pick it Up; It’s Yours, leaflet PC1L, available from The Pension Service. Phone number for leaflets is 08457 31 32 33, or website is www.thepensionservice.gov.uk
Note: if you’ve come from abroad
There are some restrictions on people who have come from abroad claiming means-tested benefits, depending on their immigration status. You need to have a right to reside and to be habitually resident in the UK before you can claim
Council Tax Benefit
or a number of other benefits.
Look on the DWP website for more information on this.
Take further advice if you are unclear about the position BUYING EXTRA PENSION
Added years or Added Pension (mainly in the public sector schemes)
Additional Voluntary Contributions (AVCs)
Stakeholder or Personal Pension
Other forms of saving
Salary sacrifice arrangements
Tax limits on pension saving
The tax rules now allow you to put up to 100% of your salary in any one year into a pension arrangement. You couldn’t do that every year, of course, because it would not leave you with anything to live on. However, it would be possible if you had an inheritance or a windfall.
The main options to increase your pension are;
If you work in the public sector, for instance in the NHS, you can pay extra contributions over a period, or all at once as a lump sum, to buy added years. This is quite expensive, because it is valuable. You buy extra years or parts of years of service, which means an increased pension linked to your final salary, for yourself and your spouse, with full inflation-proofing. Some of the public sector schemes, such as the teachers’ scheme, no longer allow the purchase of added years but instead allow members to buy an additional amount of annual pension
In most private sector companies, you can’t do this. Instead, if you are a member of the occupational pension scheme, you can pay Additional Voluntary Contributions (AVCs) to increase your pension (public sector workers have this as an extra option as well). Most employers who have an occupational pension scheme will have arrangements for this. It will be a money purchase pension, probably run by an insurance company or building society. There used to be a restriction on what you could take as a lump sum, but these have been swept away and you may now be able to take up to 25% of the total fund in this way, provided the scheme rules have been adjusted to match.
Starting or adding to a personal/ stakeholder pension; There used to be restrictions on having a personal/ stakeholder pension at the same time as belonging to an occupational scheme, but these were swept away in April 2006.
Which of these possibilities is available to you, and how much you would be able to put into them, depends on your own employment situation and the rules of the scheme.
For instance, many occupational schemes still have a rule that you can only put up to 15% of your earnings in total, into the main pension scheme and AVCs, even though this is not a legal requirement any more. So if you could afford to put more than that into a pension, you might want to look as well at putting money into a personal or stakeholder pension.
More information; look at FSA Guide to Pensions 2; Reviewing your pensions
SALARY SACRIFICE Some employers are using “salary sacrifice” arrangements to make contributions to pension schemes; the individual agrees to a pay cut, and in return the employer pays the money directly into the pension scheme. The idea is to reduce the tax and national insurance payments going to the Government. What happens is shown by the example below:
Wilfrid earns £297 a week. On each £1 he earns, above the tax and NI thresholds, he pays 11p National Insurance and 22p tax, a total of 33p. The employer pays 12.8p. He pays £18 into his pension scheme.
If instead he takes a pay cut of £18 and the employer pays £18 directly into the pension scheme, his take home pay may go up a little (because he is paying less tax and NI) and the employer will save (£18 x 12.8% =) £2.30. So more money could go into his pension without it costing him or the employer more.
These arrangements are quite legal and can be good for everyone (except the Government). You need to read the small print, though, because
the reduced pay could affect other things, like means tested benefits and redundancy pay; and
some employers try to keep part of the savings for themselves, rather put it all into the pension
Tax and your pension
You get tax relief on your pension contributions (that is, you pay less tax because you are making the contributions). Both occupational and personal/ stakeholder pensions get tax relief, but it works in different ways:
if you are contributing to an occupational scheme, the money is deducted from your gross pay before your PAYE income tax is worked out.
For example, Mary is earning £300 a week, and paying 5% contribution to her pension scheme.
How much will be deducted from her pay, and how will her PAYE be worked out?
How much tax will she save?
Mary is earning £300 a week, and paying 5% contribution to her pension scheme. How much will be deducted from her pay? 5% of £300 is £15
Her PAYE will be worked out as if she is only earning £285
Her tax rate is 22%, so she’ll be saving 22% of £15 = £3.30
if you are paying into a personal or stakeholder pension, the money comes out of your net (take-home) pay. The pension provider then reclaims tax at 22% from HM Revenue and Customs (even for people who are not taxpayers at all, or who are only paying tax at the 10% rate).
If Matthew wanted to pay £15 a week into a personal pension, how much would he need to pay out of his take-home pay?
What would the insurance company reclaim?
Matthew wants to pay £15 a week into a personal pension He’s also on the 22% tax rate, so he needs to pay 78% of that (100 minus 22) out of his take-home pay.
78% of £15 is £11.70 The insurance company would reclaim the other 22%, £3.30
People paying tax at the higher rate (40%) get tax relief at that rate. With an occupational pension it is automatic, but with a personal pension they have to claim it on their tax return.
TAX RULES SINCE APRIL 2006
Tax relief on contributions up to 100% of your UK taxable earnings
If no earnings, tax relief on contributions up to £3,600 each year
Tax penalties on pension growth by more than £225,000 in year (“Annual Allowance”)
Tax penalties if total pension savings worth more than £1.6m (“Lifetime Allowance”)
You are entitled to tax relief on pension contributions of up to £3,600 a year or 100 per cent of earnings, whichever is higher.
There is a lifetime allowance (LTA) for the amount of pension saving that gets tax relief, alongside an annual allowance for the amount the pension can grow each year. You can pay into whatever sort of pensions you like, and as many pensions at the same time as you like, so long as you’re willing to pay the tax penalties if you go above the allowances. The LTA is currently £1.6m per person (2007-2008), going up to £1.8m in stages by 2010-11. The annual allowance is £225,000 a year in 2007-2008, going up to £255,000 by 2010-11.
When can the pension be paid?
The pension can only be paid on or after the ‘normal minimum pension age’ (NMPA). This is 50 before 6 April 2010, but 55 after that date. This age limit does not apply in the case of ill-health retirement. There are some exceptions to the new age limit of 55 for employees who had a contractual right to a pension from age 50. You may be allowed to draw part of your pension while still working for the same employer, provided the scheme’s own rules allow this.
Generally, the maximum tax-free lump sum available at retirement is 25% of the total value of the pension. In any case, it cannot be more than 25% of the individual’s available Lifetime Allowance. Depending on the scheme rules, you may be able to take this lump sum from your main pension scheme, or your Additional Voluntary Contribution arrangement, or any other pension you have, so long as you do not go above the overall limit.
Activity: Recommendations from the Course
Aim To sum up
the lessons of the course;
any further activities that you are going to undertake, or think others should undertake, as a result of it
Working individually, make a list of actions you think you or someone else should take as a result of this course. We’ll then ask each person to share the main points with the rest of the group.