Arthur BeverlyPWP IFA FU Apr14 pensions
FINANCE UPDATES
APRIL 2014
Pensions and changing employer This guide looks at your pension options when you change employer.
Business UPDATE
Workplace pensions
Defined benefit pension schemes
A workplace pension is one that is arranged by your employer. A percentage of your gross salary is automatically paid into a pension scheme every time you are paid, meaning you benefit from tax relief straight away. In most cases your employer will also add money into the scheme on your behalf.
Also known as final salary pensions, these have become less common since the financial crisis. They promise to pay you a certain amount based on how much you are earning when you retire or an average of your salary across a specified period of time, usually a number of years prior to your retirement.
There are two main types of workplace pension:
Moving jobs
Defined contribution pension schemes Also known as money purchase schemes, these are the most common type of workplace pension. The amount you receive upon retirement is directly related to how much you have paid in, how long you have paid in for and how well the underlying investments have performed.
2 Stewart Street Milngavie Glasgow G62 6BW 0141 956 5525 [email protected]
When you leave your job your pension savings belong to you and will remain invested until you decide what to do with them. If you leave but aren’t yet retiring there are a number of options open to you. These may include: •
leaving it where it is until you retire
•
continue paying into it (if it is an individual scheme)
•
transfer to a new scheme
•
get a refund of your contributions.
Leaving it where it is If you leave work and don’t get a new job and keep your pension where it is, your pot will be preserved until you retire. You will still qualify for most benefits such as death benefits (but not associated life cover) and any investment growth or defined benefit increases. How your pot grows will depend on the type of scheme you are in. For money purchase schemes, your pot will grow in line with the scheme’s investments. For defined benefit schemes, your preserved pension must increase by at least a minimum set out by law. This minimum depends on when you built your pension up, when you stopped contributing and if the scheme is contracted out.
Get in touch for further information.
www.abfm.co.uk
Pensions and changing employer Carry on paying into your pension If your workplace pension is an individual scheme - such as a personal pension - you may be able to continue making payments into the scheme.
Transfer your pension If you start a new job you may wish to transfer your old pension across to your new workplace pension scheme. If you are planning to do this, it is important to make sure you check your new employer’s arrangements. For example, some organisations, particularly in the public sector, only allow a 12 month window for transferring your pension. Before deciding to transfer, you need to be certain it is the right decision for your specific circumstances. Elements to consider include transfer charges and losing fixed protection or protected pension age. The type of pension you are in and transferring to will also make a difference. For example, it is highly unlikely to be advisable to transfer out of a defined benefit scheme because of the guaranteed benefits, whilst transferring out of a defined contribution scheme will depend upon a range of factors. Pension transfers are a complex and potentially high-risk area, so it is important to seek expert advice to ensure the decision you make suits your needs and that you do not lose any valuable benefits.
Important information The way in which tax charges (or tax relief, as appropriate) are applied depends upon individual circumstances and may be subject to change in the future.
Get a refund on contributions
What should your employer tell you?
You can normally only get your pension contributions refunded if you’ve been a member of a pension scheme for less than two years. This isn’t applicable to savings in a personal or stakeholder pension.
When you leave your job and are a member of your employer’s pension scheme you should be told about your pension options. Depending on your scheme, you should be told about:
If you do get a refund, tax will be deducted at a rate of 20 per cent on refunds up to £20,000 and 50 per cent on anything above £20,000. The tax will be deducted before you get the refund. The tax deducted reflects the tax relief previously given on your contributions. You can’t reclaim the tax deducted but no further tax will be due on the lump sum payment.
Pot follows member? In 2013, the Department for Work and Pensions (DWP) announced plans for a ‘pot follows member’ automatic transfer system. The department recognised that many people collect multiple pension pots over the course of their working lives and auto enrolment will only add to this. In fact, the DWP predicts there could be 50 million dormant pension pots by 2050. The plans are initially for pension pots up to £10,000. However, industry bodies have voiced fears that pensions may be moved from well-run schemes to those with higher charges and lower governance.
•
your pension transfer options
•
the value of your pension
•
what is payable when you retire.
Pension planning Leaving your job could be the ideal reason for re-visiting your retirement planning strategy to make sure that you are on track for a comfortable retirement. Now may be the time to adjust your contribution levels or think about changing the investments you hold. If you have multiple pension pots, we will be able to advise as to whether they should be transferred to make the best possible use of them. Retirement planning has to be carefully tailored to suit your needs and circumstances and we are in the position to be able to offer such advice.
Contact us to find out how we can help with your pension planning.
The proposal has been included in the Pensions Bill, which is currently being debated by both Houses of Parliament before an agreement is reached.
This document is solely for information purposes and nothing in this document is intended to constitute advice or a recommendation. You should not make any investment decisions based upon its content. The value of pensions can fall as well as rise and you may not get back the amount you originally invested.
Whilst considerable care has been taken to ensure that the information contained within this document is accurate and up-to-date, no warranty is given as to the accuracy or completeness of any information. Errors and omissions excepted.
Arthur Beverly Financial Management is authorised and regulated by the Financial Conduct Authority. Financial Services Register number 485198. Registered in Scotland Number 342744. Registered Office: 22 Backbrae Street, Kilsyth, G65 0NH
APRIL 2014
Pensions and changing employer This guide looks at your pension options when you change employer.
Business UPDATE
Workplace pensions
Defined benefit pension schemes
A workplace pension is one that is arranged by your employer. A percentage of your gross salary is automatically paid into a pension scheme every time you are paid, meaning you benefit from tax relief straight away. In most cases your employer will also add money into the scheme on your behalf.
Also known as final salary pensions, these have become less common since the financial crisis. They promise to pay you a certain amount based on how much you are earning when you retire or an average of your salary across a specified period of time, usually a number of years prior to your retirement.
There are two main types of workplace pension:
Moving jobs
Defined contribution pension schemes Also known as money purchase schemes, these are the most common type of workplace pension. The amount you receive upon retirement is directly related to how much you have paid in, how long you have paid in for and how well the underlying investments have performed.
2 Stewart Street Milngavie Glasgow G62 6BW 0141 956 5525 [email protected]
When you leave your job your pension savings belong to you and will remain invested until you decide what to do with them. If you leave but aren’t yet retiring there are a number of options open to you. These may include: •
leaving it where it is until you retire
•
continue paying into it (if it is an individual scheme)
•
transfer to a new scheme
•
get a refund of your contributions.
Leaving it where it is If you leave work and don’t get a new job and keep your pension where it is, your pot will be preserved until you retire. You will still qualify for most benefits such as death benefits (but not associated life cover) and any investment growth or defined benefit increases. How your pot grows will depend on the type of scheme you are in. For money purchase schemes, your pot will grow in line with the scheme’s investments. For defined benefit schemes, your preserved pension must increase by at least a minimum set out by law. This minimum depends on when you built your pension up, when you stopped contributing and if the scheme is contracted out.
Get in touch for further information.
www.abfm.co.uk
Pensions and changing employer Carry on paying into your pension If your workplace pension is an individual scheme - such as a personal pension - you may be able to continue making payments into the scheme.
Transfer your pension If you start a new job you may wish to transfer your old pension across to your new workplace pension scheme. If you are planning to do this, it is important to make sure you check your new employer’s arrangements. For example, some organisations, particularly in the public sector, only allow a 12 month window for transferring your pension. Before deciding to transfer, you need to be certain it is the right decision for your specific circumstances. Elements to consider include transfer charges and losing fixed protection or protected pension age. The type of pension you are in and transferring to will also make a difference. For example, it is highly unlikely to be advisable to transfer out of a defined benefit scheme because of the guaranteed benefits, whilst transferring out of a defined contribution scheme will depend upon a range of factors. Pension transfers are a complex and potentially high-risk area, so it is important to seek expert advice to ensure the decision you make suits your needs and that you do not lose any valuable benefits.
Important information The way in which tax charges (or tax relief, as appropriate) are applied depends upon individual circumstances and may be subject to change in the future.
Get a refund on contributions
What should your employer tell you?
You can normally only get your pension contributions refunded if you’ve been a member of a pension scheme for less than two years. This isn’t applicable to savings in a personal or stakeholder pension.
When you leave your job and are a member of your employer’s pension scheme you should be told about your pension options. Depending on your scheme, you should be told about:
If you do get a refund, tax will be deducted at a rate of 20 per cent on refunds up to £20,000 and 50 per cent on anything above £20,000. The tax will be deducted before you get the refund. The tax deducted reflects the tax relief previously given on your contributions. You can’t reclaim the tax deducted but no further tax will be due on the lump sum payment.
Pot follows member? In 2013, the Department for Work and Pensions (DWP) announced plans for a ‘pot follows member’ automatic transfer system. The department recognised that many people collect multiple pension pots over the course of their working lives and auto enrolment will only add to this. In fact, the DWP predicts there could be 50 million dormant pension pots by 2050. The plans are initially for pension pots up to £10,000. However, industry bodies have voiced fears that pensions may be moved from well-run schemes to those with higher charges and lower governance.
•
your pension transfer options
•
the value of your pension
•
what is payable when you retire.
Pension planning Leaving your job could be the ideal reason for re-visiting your retirement planning strategy to make sure that you are on track for a comfortable retirement. Now may be the time to adjust your contribution levels or think about changing the investments you hold. If you have multiple pension pots, we will be able to advise as to whether they should be transferred to make the best possible use of them. Retirement planning has to be carefully tailored to suit your needs and circumstances and we are in the position to be able to offer such advice.
Contact us to find out how we can help with your pension planning.
The proposal has been included in the Pensions Bill, which is currently being debated by both Houses of Parliament before an agreement is reached.
This document is solely for information purposes and nothing in this document is intended to constitute advice or a recommendation. You should not make any investment decisions based upon its content. The value of pensions can fall as well as rise and you may not get back the amount you originally invested.
Whilst considerable care has been taken to ensure that the information contained within this document is accurate and up-to-date, no warranty is given as to the accuracy or completeness of any information. Errors and omissions excepted.
Arthur Beverly Financial Management is authorised and regulated by the Financial Conduct Authority. Financial Services Register number 485198. Registered in Scotland Number 342744. Registered Office: 22 Backbrae Street, Kilsyth, G65 0NH
